HubPages has had to develop lots of technology to slow spam down (GigaOM). I left a similar comment on Jason's blog that if you want to prevent SEO spam, then the best thing to do is to stop the benefits. In SEO language, noindex the page (prevents google, yahoo, msn and other search bots from including the page in their index) and nofollow outbound links. SEO guys love link juice. They want a high quality link and any traffic is just a bonus.
HubPages uses a scoring system called HubScore to apply this type of system to the content. The scoring system includes direct inputs (thumbs up/thumbs down and others) and many algorithmic inputs as well. It's improving all the time, but it still represents a challenging question for open publishing systems on the best way to be open, fair, and accept the differences in the wide range of content that people want to publish.
HubPages allows all types of content to be published. Mature content is much less visible and all of the content is marked with nofollow meta tags. We also don't display mature content on all the interlinked pages that have correlated tags (you may have to browse HubPages to understand this - click one of the green tag links), but you can find it in search if you are looking for it. We thought this was the right user experience. Since we implemented it, we received many positive comments from the HubPages community.
When Squidoo allows a spam page to be visible to search engines they are allowing the search engine to decide if the page should or should not rank for search terms. If the domain becomes too polluted, the risk is that Google or any other search engine will simply stop ranking pages from the domain so all traffic is effectively cut off.