It turned out that the upgrade did not solve the problem as it was header.php in my theme that was modified to include a <u> element with display:none that included a long list of bad links. (see excerpt at http://www.pastie.org/223173 ).
I assume it happened via sql injection that I hope had been resolved in WordPress 2.5.1
This blog has been hacked in a very peculiar way. See the summaries for the various blog entries on Google:
Google’s cache and the pages themselves seem “clean” - no mention of various drugs and such and no “bad” links. So I am unsure what is the benefit to the hackers. In any case I used this as an opportunity to upgrade to WP 2.5.1.
Hopefully the problem will go away when Google & Yahoo reindex.
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