[Matt_Cutts]

"Does that mean that Google manually decrease rankings of spammy sites that their algorithms haven't caught?"

Although our first instinct is to look for an algorithmic solution, yes, we can. In the blog post you mentioned, it says

"I should add, however, that there are clear written policies for websites recommended by Google, and we do take action on sites that are in violation of our policies or for a small number of other reasons (e.g. legal requirements, child porn, viruses/malware, etc)."

As the quote mentions, we do reserve the right to take action on sites that violate our quality guidelines. The guidelines are here, by the way: http://www.google.com/support/webmasters/bin/answer.py?hl=en...