The other night on Chicago Tonight they were discussing identity theft (the context was this ChoicePoint business) and the new free credit reports that Americans can get this year. The host asked the experts whether these credit inquiries wouldn't reduce people's credit ratings, since generally inquiries have an effect on your credit rating. One expert (a professor at NWU's law school whose name I can't remember and unfortunately couldn't find) sort of dodged the question by saying that if everyone around the country asked for a credit report, this wouldn't be a problem, because the scores are calculated relative to others' scores. The big problem with this explanation is that there will be defectors -- there's a major incentive here not to get the credit report when everyone else is going it. So that didn't make any sense.
At any rate, I've been noodling around the internet, and it turns out the "expert" was wrong. There are actually two kinds of credit inquries, soft and hard; and only hard inquiries, made for example by credit card companies when you open a new account, affect your rating. Soft inquiries, including inquiries by individuals and potential employers, don't have any effect on scores. I mention this beause it seems to be a common misconception.
Also, I can find no evidence (see, for instance, here, here, and here) that credit ratings are calculated relative to others' scores. They may be treated relatively in the market, so that if everyone's score suddenly declined, lower scores would be accepted for the same transactions. But this is a market effect, not part of the score itself, and presumably there would be a considerable lag.
MORE: Sweth fleshes this out considerably in comments.