I recently came across Fitt’s Law via a 37signals blog post. Fitt’s law states
The time to acquire a target is a function of the distance to and size of the target.
For the web, that means the bigger the better (shamelessly borrowed from mezzoblue). Padded links are so much better for navigating around a webpage. Navigation is faster and it makes the user more comfortable while browsing the website. This principle should be applied to the key areas of a website like main navigation, common sidebar links etc.
Good links, text readabilitiy are key factors in visitor retention. You may get a few thousand visits from Google, but how long are those people going to stick around? You need to keep them on your website and such issues which are well within your control should not be driving them away.
The small stuff matters. You can always spot a good designer in how he treats the little things.
Here is a good visual explanation by Kevin Hale at Particle Tree: http://particletree.com/features/visualizing-fittss-law/
Rushi's Ramblings 