I'm not sure how your questions relate to
PR but i can give you some advice.
There could be MANY factors to determine why your not ranking anymore, perhaps your body copy is lacking in keyword density, perhaps you done have the keyword in your META description. There could be many things wrong.
On the link bulding side, i personally see nothing wrong with reciprical linking, i have done it in the past on clients sites. Reciprical linking is down to personal preference. I don't think that would be why you slipped from Google.
Yes you will be indexed and climbing in Yahoo/MSN because they prodominently go on backlinks. MSN for example spiders everything from session ID's to broken backlinks (might have been a past site you exchanged a link with that no longer exists. MSN still indexes and counts it).
You will see the majority of sites have more links in Yahoo/MSN than they do in Google.
PM me the site, i'll see if i can help you out a little more.
Sin