Drupal 7 SEO - no more modules
We've recently upgraded to Drupal 7 for client projects, sure there are modules needing a bit more work but overall, we've been happy.
What does bug me a little, is the number of modules still needed (without custom tweaks) to keep up with Search Engine Best Practices.
Flicking open the Google Search Engine Optimization Starter Guide, lets see the current (21-May-2011) Drupal 7 SEO situation;
Page Titles
For basic SEO, title tags are already well handled by Drupal 7 core except some themes should do simple tweaks to the frontpage.
For users wanting tighter title control, the excellent Page Title module by nicholasThompson already has beta release for Drupal 7 to control page titles for all types of pages including the frontpage.
Resources;

Description Meta Tags
Drupal 7 Core simply ignores Description Meta Tags which isn't ideal for more precise SEO control.
Sadly, the Drupal 6 Nodewords Module was not ported to D7, but the new Metatags module also by Dave Reid will be taking its place. Metatags is currently in initial coding stage but its sure to be a nice module when its released.
In the meantime, valthebald has released the Meta Tags Quick module, which is a simple but efficient way to add description and keyword metatags to your content. (UPDATE Nov-11 - The Meta tags module is now available for Drupal 7.)
Meta tags quick covers basic meta tags use cases for Drupal 7 sites and relies on Field API - standard mechanism for extending data structures in D7.
Meta Tags Quick doesn't allow you to add noindex
Resources;
Friendly URLs
Path Module is already included in Drupal 7 Core and I think we all thankful that Pathauto's Drupal 7 beta release works great, Dave's been busy as usual.
Better Navigation
Drupal allows a lot of freedom to plan your User Interface and Navigation and this is more a website design issue and required modules are too specific to each project to discuss here.
For making an XML Sitemap easily, Dave Reid comes to the rescue again with his XML Sitemap module, D7 ready (beta).
You should also try to create a useful 404 page, this can be set in your config page ( /admin/config/system/site-information ) or consider the Search 404 module. This module cleverly does a search with the keywords in the URL instead of showing a standard "404 Page not found".

Offer Quality Content and Services
THE most important part of SEO and sadly, not even Dave can help you here. Here are some great articles on content and web strategy for inspiration;
The Web Strategy Pyramid: A Well-balanced Web Strategy
Debating the Value (and Meaning) of "Great Content" for SEO
Duplicate Content
Google recent PANDA updates has put alot of emphasis on website quality and also Duplicate Content, which is content that appears on the Internet in more than one location (URL)
Global Redirect from nicholasThompson is a life saver for preventing duplicate pages by setting up some vital 301 redirects in some common situations like updating a site or changing aliases.
For more manual control, we should also be using the Rel="canonical" tag which was touched on by Nodewords in D6 but does not seem to be presently covered at all for Drupal 7.
Anchor Text and Alt tags
Drupal Core and a series of D7 modules makes Drupal 7 very flexible for setting required anchors and alts.
Analysis and Reports
Our sites usually has Google Analytics and Webmaster Tools set up. This just simply requires adding the Tacking Code Snippet to your theme's html.tpl.php file and setting Link to Google Analytics accounts in webmaster tools.
For more control, you can install the Google Analytics module.

Disclaimer: I don't claim that the above list is exhaustive, just what i think are important SEO modules for Drupal.
A lot of work has already been put in Drupal 7 Core to comply with major search engine best practices and the great work on the above modules makes Google love our Drupal 7 sites.
My opinion;
For Drupal to become more acknowledged as A or The SEOed CMS, we'll need to simplify SEO for more webmasters.
I was reluctant to post this post because having a checklist of 4-5 required modules before the CMS can be called SEO compliant gives the impression that SEO was an afterthought. This of course is not true and we all love Drupal's modular approach to site building, but before adding some of the above modules into Drupal core, Drupal SEO continues to seem awkward.
Most webmasters just want to focus on providing great content on the topic they love, hopefully letting the CMS handle most of the fiddly SEO, it doesn't even need to be perfect SEO - the content quality will balance that out, just make SEO as SIMPLE as possible.
This could be a project Xenyo would be interested in. Feel free to share your views on this.

