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Why sites with similar content should have completely separate IP addresses and have minimal linking to each other once set up.

Google and other engines know who owns each domain and can easily see a websites IP address. An old search optimization “black hat” technique would be to dominate search results by creating multiple websites with the same or similar content. If these sites are optimized, the owner of these sites may end up having several of their sites ranked on the first page of the engines. To prevent this, the engines came up with web master guidelines.

Google’s Quality guidelines - specific guidelines
http://www.google.com/support/webmasters/bin/answer.py?hl=en&answer=35769

•Avoid hidden text or hidden links.
•Don't use cloaking or sneaky redirects.
•Don't send automated queries to Google.
•Don't load pages with irrelevant keywords.
•Don't create multiple pages, subdomains, or domains with substantially duplicate content.
•Don't create pages that install viruses, trojans, or other badware.
•Avoid "doorway" pages created just for search engines, or other "cookie cutter" approaches such as affiliate programs with little or no original content.
•If your site participates in an affiliate program, make sure that your site adds value. Provide unique and relevant content that gives users a reason to visit your site first.

The main guideline we are looking at is bolded above. If your website has product descriptions similar to other sites that Google knows we own (through domain name ownership, IP addresses, etc..)you can be flagged and either have some of the sites reduced in rank, or worse, banned.

Duplicate content

http://www.google.com/support/webmasters/bin/answer.py?answer=66359

“Google tries hard to index and show pages with distinct information. This filtering means, for instance, that if your site has a "regular" and "printer" version of each article, and neither of these is blocked in robots.txt or with a noindex meta tag, we'll choose one of them to list. In the rare cases in which Google perceives that duplicate content may be shown with intent to manipulate our rankings and deceive our users, we'll also make appropriate adjustments in the indexing and ranking of the sites involved. As a result, the ranking of the site may suffer, or the site might be removed entirely from the Google index, in which case it will no longer appear in search results.”

Crosslinking
“Linking sites you own together”

I feel Yahoo is more sensitive to crosslinking, but Google will devalue associated sites to reduce the chance of one person dominating the search results for a particular keyword.
The engines have reported that they will penalize “excessive crosslinking.” Excessive is very subjective, but based on my years of search optimization experience and experience unbanning sites, “excessive” came into play when numerous internal pages of each site had content with links to the other sites internal pages. A few links here or there did not appear to create a penalty.

Bottom line, the engines have to protect the results they serve to their customers. If one person “owns” a page of results, it does not help the engines or the people searching for different information. If the engines see crosslinking of similar content, they will assume you are trying to manipulate the search results.

Recommendation

1.Have separate domain ownership. Name, contact info, credit card, etc… and put it in private ownership. Otherwise Google is a registrar and can view this data.
2.Do not crosslink. If you have to, limit crosslinking to only a couple of pages. Do not link numerous internal product pages to other owned sites.
3.Even with the above, if google sees the content to be similar, one of the sites pages will be devalued. Every title tag, meta tag, and product description MUST be changed so they are not similar.