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I use both code and the WP links, it depends.
On my main blog I divide the links up. I have traffic links at the top of the sidebar, then further down I have links to my sites, links to the homepage of webmasters I consider more than just link partners, personal picks - sites I like, links to trade partners and then a section for directories/link lists.
I use HTML code for some links as I like to customize the look, size, etc. Also, sometimes it's easier to paste in code than to add links thru WP one by one.
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