The old saying that competition improves you is true. It's actually fun having a competitor whom you are pitting your wits against, plus you learn lots in the process.
Just to recap, I had a competitor move into one of my niches, where I had a Squidoo lens getting 200 hits a day and a steady stream of affiliate sales. In this niche there are essentially four main keywords, about seventeen major long tail words, plus a myriad of truly long-tail keywords.
My competitor targetted only one of the four main keywords, and interestingly all their backinks were focused on this keyword. Not surprisingly, they got the #1 slot for this word - but didn't even appear on the first page for the other three keywords, and for the lesser keywords only ranked on the first page for two.
I by contrast was mixing up and varying my anchored text on my backlinks, trying to keep it natural. I was on the first page for all the four main keywords, my highest ranking was #2 for one of them, and on the first page for 11 of the 17 major longer keywords with the #1 spot for four of them.
My strategy gave me diversity in the keywords I ranked for. Their strategy gave them the #1 spot for one of the main keywords. I expect if I continue with my strategy I should gain the #1 spot for one or more of the major keywords over time. But it's interesting to learn that their tactic of focusing on just one keyword didn't hurt them in that it didn't arouse any suspicions amongst the Google gods and they suffered no penalty.
What I found most interesting was that they were using press releases to get backlinks. They clearly sprayed press releases around, and some major sites published them. Press releases appear to be quite a powerful tool. The question is whether someone like me could get a press release published. By the look of them, the press release needs to be as official-looking as possible with name and contact details etc in order for webmasters of other sites to accept them and publish them. I personally like to be anonymous, but it might be worth looking into setting up a nom de plume for IM work. I also think press releases work best if you own your own domain - I can't imagine anyone publishing one for a web 2.0 site.