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There are plenty of reasons on why you may not want a page, getting link juice from your nav menu. Utility pages such as About Us-Contact Us-Privacy Policy, etc would come to mind.
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Does it help to have keyword rich pages that are "hidden" from your menu?
I would think you could do this for several small towns/cities on separate pages within the same website.
Did you even comprehend what you read Josh? When you have keyword rich pages they are being written for the search engines not for people. Google considers this spam. This is why Google has moved away from title tags and header tags and even devalued the effectiveness for keyword stuffing. Unless he wants to rank his pages in Bing and yahoo only, overly keyword dense pages can even have a negative effect on Google rankings.
Btw OP it is still a valid ranking strategy visit wwwcheapcarinsurance.net and you can see how they structure their site to rank for multiple cities and states. Just because Google doesn't like it or consider it spam does not mean it does not work.