Well, until recently I was under the impression that you lost a little PageRank for each page you linked to. cbp, says this is not the case, rather this idea came from a widespread misunderstanding of the
PR formula. Since I have a hard time counting once I run out of fingers and toes, I'm pretty much stuck going with the opinions of others on this. So I can only parrot cbp in saying, "Rubbish, no
PR is lost to outbound links".
However, I think most people will agree that
PR seems to play a minor role in Google's modern algo (and not exactly what you asked anyway) so the point is mostly moot.
Another accepted opinion is that linking to "bad internet neighborhoods" can get your site penalized (so avoid linking to sites participating in "shady"
SEO, or sites that link to sites doing "shady"
SEO).
It's also possible that you may get penalized for linking to off-topic sites. If you subscribe to this school of thought, try and keep your exchange partners as close to your site's theme as possible.
Also having hundreds of uncategorized links on one page looks spammy (to visitors and likely to G), so I think it is most likely OK to have as many outbound links as you want, just keep them categorized and sane.
A popular speculation has been that google discounts links it finds to be reciprocal. I haven't seen anything I would call proof on this yet, but it sounds like a reasonable theory.
"Link Farm" has come to mean any spammy, outbound link orgy. But I think it started with a scheme where you got this script and added your link to the bottom of it and posted it on your site, then somehow passed it on to other sites who added their link to the bottom and passed it on, etc.
You're right, inbound links can't hurt you. At worst, they will have little, or no effect. The argument for not using FFA (Free For All) sites or link farms for inbound links is that it is a waste of time. Google bans or disregards ffa, link farms, guestbooks, and other common targets for spammers, so you get no credit for your link.
You asked how to get quality inbound links without having to reciprocate them. This forum has lots of good topics about this. Some of the more popular techniques include writing articles for syndication (though Google disregards duplicate content, so it seems to me that this will only get you 1 link at best, but a good article will result in traffic), submitting to directories (there's a thread around here where everyone posted their favorite directories to submit to), submitting to directories that charge $, writing great content for your site will attract links (write about decorating, or some other topic that compliments your site), and buying text links on other sites (research this one before you do it, it has its risks). I just improved a little tool (in my sig, it has a few natural links), soon I'm going to release the code to webmasters who agree to give me an inbound link, maybe you can find something similar to try.
Good luck.