Do the engines discount links from the same domain versus links from a different domain?

Not now. Not ever. To be sure, just follow the money.

Big sites involve big dollars and it is big dollars that makes the world go ’round, so you can bet that the now public Google will have joined the other public financed engines in a gentle but certain catering to the American greenback.

Consider: If my name is Bill and I build a 10,000 page website to support my software business, I expect to have a high PageRank at Google and I expect to be able to control the Link Reputation of my home page using my thousands of internal links. Now suppose some disgruntled open-source weenie links to me with the text "Windows is Evil" and gets ranked ahead of me for my own product name? I would have good reason to be upset.

So, you can bet that at the very next social event for young billionares, Bill will corner Larry and get it fixed.

But seriously, if internal links are significantly discounted relative to external links, then small sites always gain an advantage over large sites. This is very bad. In general, big sites actually do deserve to rank better than small sites, external linking being more or less equal, which internal links will accomplish automatically.

If you rely instead solely on external links, what you will find is that the first to get a top rank will continue to keep top rank because it is top ranked pages that get most of the links. This would make it even harder for a large site to displace a small site that happens to get top ranking.

And finally, just go look at some search results with OptiLink. Big sites have a clear advantage. Do they have more external links than small sites? Only some of the time. It still appears that links from any source are sufficient, so they might as well be your own.