Matt Cutts, the head of web spam at Google, made a statement that site owners should nofollow any link on widgets they distribute. So apparently this common practice has also now become gray/black hat tactic.
Is there any way around this to still provide widgets and get both an SEO benefit and provide value from the actual widgets? Without getting penalized by Google, that is.
Make the widget and the link about something the user has created or arranged on your site, instead of every widget having the same link to the root domain. Sites like StackOverflow and Yelp get SEO benefit from users linking back to their profiles on their site, while displaying some of the key info wherever they'd like to embed the widget:
From Google's point of view, what they care about with widget links (or any kind of link) are things like: