There has been at least a few threads discussing the use of NoFollow on internal links. Matt Cutts was asked about this directly...
Quote:
Does Google recommend the use of nofollow internally as a positive method for controlling the flow of internal link love?
A) Yes – webmasters can feel free to use nofollow internally to help tell Googlebot which pages they want to receive link juice from other pages
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(Matt's precise words were: The nofollow attribute is just a mechanism that gives webmasters the ability to modify PageRank flow at link-level granularity. Plenty of other mechanisms would also work (e.g. a link through a page that is robot.txt'ed out), but nofollow on individual links is simpler for some folks to use. There's no stigma to using nofollow, even on your own internal links; for Google, nofollow'ed links are dropped out of our link graph; we don't even use such links for discovery. By the way, the nofollow meta tag does that same thing, but at a page level.)
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SEOmoz | Matt Cutts on Nofollow, Links-Per-Page and the Value of Directories
Dave