There are many theories being tossed around the many forums as to what Google was trying to accomplish with this update. This is common as the knee jerk reaction is to question, moan, and cry in despair. Over the next few days it will calm down and the serious work of really analyizing will begin. Some of the most recent theories include: that google is looking more for synonyms in anchor text, therefore ranking sites more from permutation and variety of keywords rather than strict semantics. Also many are suggesting that large directories that sell links, are being devalued. This MAY be an effort by google to discourage artifical popularity building.
Matt Cutts blog mentions a possible link and PR update coming soon. Perhaps within days.
Relax and let the dust settle..