As you probably know, backlinks from a wide variety of sources play a major role in ranking. As of late, links that appear within content, such as blogs, carry the most weight, since they come off as being the most natural.
1. I cannot guarantee one way or another whether your competitor is definitely paying for the articles, although that seems to be the case.
2. Search engines, especially Google, definitely frown on this activity. Over time, they catch onto most of it. Sometimes they just discount the backlinks while other times they actually penalize the sites involved.
3. Like all "black hat" SEO techniques, they produce fast results in the short term, but once discovered (and they all eventually are) then you can end up severely penalized.
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The Queen of DaniWeb
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