SEO Quake plugin is awesome! Right click on any page and you get a diagnoses which does a checklist for SEO. Points out the things you've gotta fix etc, really good plugin.
Google Keyword Planner, Google Analytics, Google Webmaster Tools, SEO Quake, ahref, Majestic SEO, Market Samurai, ubersuggest. These are some SEO tools I use. Most are free. Some are paid but I'd say that it's well worth it.
The basic free tools for SEO are mentioned below;
1)Google Keyword Generator
2)Suggested Topics Tool
3)Keyword usage
4)One-click submission to major search engines
5)Sitemap Creator
I have a website of my own where i make use of SEO service with the help of Tucktail.com
Is it a punitive punishment? If so, it’s doing nothing to endear Google to webmasters. Is it a smokescreen? i.e. they don't know which links are bad, but by having webmasters declare them, this helps Google build up a more comprehensive database? Bit of both? It might also be adding costs to SEO in order to put SEO out of reach of small companies. Perhaps it’s a red herring to make people think links are more important than they actually are.