Directory submission is one of the most important aspect when it comes to link building, but you should set up a full plan rather than arbitrary submission.

There 3 types of directories you have to think of all the time.
1- First-tier directories such as Dmoz, Yahoo, Business.com. Those are very important directories. They require quality content that will be useful for site visitors, and others such as Yahoo! requires a payment to be included in their directory, as well as the quality contnet.

The advantage of 1st-tier directory is that they not only give you a quality link, but also a quality traffic, since they are the most well-known directories in the internet.

2- 2nd-tier directories: those are directories that struggle to build higher page rank to make a value to their submissions. They are smaller directories and not as famous as the 1st tier directories.

3-Niche directories, are industry specific directories that focus on specific topics such as travel, insurance directories, etc...
Niche directories are extremely good if you are going to invest in, with PR in mind.

By setting a budget to some authority niche directories, you will increase your chance to beat others who are focusing only on free directory submission.

Some 2nd tier directories offer free link with noFollow attribute.

You can still submit to those directories, since some search engines such as Yahoo ignores the use of this attribute.

Finally, by managing the whole process you will be able to increase your website PR.