You asked a couple of questions:
Short answer: this is the number of links, not how they are encoded, which is the problem.
Long answer:
If you drop links to hundreds of pages, does this large unordered list at the top of each page code hurt that the page is SEO (because it's all non-page code at the top)?
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- http://www.smashingmagazine.com/2009/03/24/designing-drop-down-menus-examples-and-best-practices/