In the latest Webmaster Help video, Google's Matt Cutts discusses the use of rel="nofollow" on internal links, addressing the following user-submitted question:
Does it make sense to use rel="nofollow" for internal links? Like, for example, to link to your login page/ Does it really make a difference?
"Okay, so let me give you the rules of thumb,' he begins. "I've talked about this a little bit in the past, but it's worth mentioning again. rel='nofollow' means the PageRank won't flow through that link as far as discovering the link, PageRank computation [and] all that sort of stuff. So, for internal links - links within your site - I would try to leave the nofllow off, so if it's a link from one page on your site to another page on your site, you want that PageRank to flow. You want Googlebot to be able to find that page. So almost every link within your site - that is a link going from one page on your site to another page on your site - I would make sure that the PageRank does flow, which means leaving off the nofollow link."
"Now, this question goes a little bit deeper, and it's a little more nuanced," Cutts continues. "It's talking about login pages. It doesn't hurt if you want to put a nofollow pointing to a login page or to a page that you think is really useless like a terms and conditions page or something like that, but in general, it doesn't hurt for Googlebot to crawl that page because it's not like we're gonna submit a credit card to make an order or try to log in or something like that."
He goes on to note that you would probably want a nofollow on pages pointing to other sites, like in cases where people abuse comment systems. The general rule for internal linking, however, is to go ahead and let the PageRank flow, and let Googlebot learn all about your site. Even in cases where you don't want Google to crawl the page, you might as well just use noindex, he says.
He also suggests that login pages can still be useful for some searchers.