Guest Blogging is Social Networking at its best - and an excellent way to increase your reach, and gain positive exposure in your target market.
When you are a guest writer on someone's blog, you arent just getting "free advertising". You are getting a personal recommendation to a loyal base of readers, directly from the person that they trust and respect on those topics.
Of course, you are also getting a permanent link back to your site from a relevant content page - which is incredibly valuable with current algorithms.
As a blog owner, I can certainly see the benefits in allowing guests to write posts for your blog. In fact, I have done that twice now (see posts by Dave Navarro and Angela Wills), and it was definitely a positive experience. It takes the pressure off of you to write, of course - but it also offers your readers a little something new - a different perspective and writing style even.
Last month I was a guest blogger for Michel Fortin, and in fact my post there is still on the main page of MichelFortin.com. The results were very positive in regards to traffic (was one of the top 5 referrers for the month of August), and it was a great opportunity to gain exposure with Michel's readers.
As an added bonus, my post there was picked up by CopyBlogger in Brian's Labor Day Link Karma. As you can see, a guest post on a popular blog can bring several weeks of exposure, click-throughs and blog-linking.
I am just getting into this myself and certainly dont claim to be an expert on the topic. But I can tell you firsthand that this is definitely something you want to consider. I'll leave you with a couple of great resources that should help spark some ideas for you:
Lorelle VanFossen has an article titled Learning the Art of Guest Blogging, complete with links to resources from those with more experience with it. Definitely give that a look if you are interested in the benefits of being a guest blogger or finding guest bloggers for your own blog.
Darren Rowse also has a great article at ProBlogger on the topic, which you can find here: Why Guest Bloggers are Great for a Blog.
Check those out, and also see my tips on Social Networking to give you some ideas for getting yourself networked & noticed in the blogosphere. That will give you a head start on locating blogs & bloggers you may want to work with.