Exactly. I wonder if the follow/no follow barrier should be raised due to karma inflation, though.

Here's an idea to reward high quality posts in a way robust to karma inflation: You could change the criteria for a follow/nofollow decision to use the time a link spends on the front page (e.g. the top 30). High scoring posts stay there for a while, while low scoring posts will drop off quickly.

A similar approach could be used to dynamically set the karma barrier, if you don't want to track the rank of individual posts.

I actually wonder if Google has things like this built in.

Do you think it knows that a 3000 point digg story is better than a 50 point story?

Seems redundant to me. A 3000 point Digg story will likely have many more inbound links than a 50 point story anyway.

Good point

Now if every site implemented something like this - I suppose that would be recreating pagerank in a way.