We just moved our website over to Google Sites. It is not the perfect web solution, but it works well for our business.
I've known all along that Google Sites nofollows pretty much every link you place on a Google Site, but I didn't think about my internal linking having nofollow until Andy Beard sent me a tweet on the matter.
Most of the links to our domain (www.ditoweb.com) point to our naked URL, so we rely on the home page to pass some pagerank down to the internal pages. I wonder if now we will have problems getting our internal pages to rank well for related terms?
Despite the nofollow, Google has been indexing our new pages (duh), so it is good to see them in the index.
I don't expect to see this change anytime soon, but I am curious to see how Google Sites evolves over the next couple years, and if Google will allow Site's users enough trust to give them real links to internal pages on their own website?