The links that show up in your Dashboard will show up when another blog that is listed in the Google Blog Search directory (http://blogsearch.google.com/) links to your blog.
If none of the blogs listed in there haven’t linked to you than nothing will be displayed. However, it doesn’t mean that nobody isn’t linking to you….just that the Google Blog Search engine hasn’t found any links using their service.
In other words, nothing is broken 🙂
How do I determine if one the blogs that is linking to mine is in fact listed in the Google Blog Search directory? Is it simply a case of me searching for the blog using that tool and if it is found then by definition it is listed?
Yes but there are thousands if not hundreds of thousands or possibly millions of blogs listed in there. Searching would be futile and a complete waste of time.
I searched for one blog I know has an article that links to one of mine, and I found it immediately.
The link works, but the backlink notification in my dashboard does not.
What might be other possible causes?
How would I troubleshoot this?
The fact that Google hasn’t decided to include it in their index. The results that are being displayed are from a feed created by Google and WordPress has no control over what shows up.
I imagine you would have to get in touch with Google somehow and ask why your site isn’t showing up.