IMO, this would not have any negative effect on SERP's as you yourself said that it would be good for users and Google wants user-centric sites and NOT SE-centric

There could be a problem if you use the keyword "widgets" at every level of the breadcrumb trail. It really cranks the keyword-in-anchor text factor up to a high level. If you can find a way not to use so much repetition, that would be better.

that is exactly what I am worried about, that putting [Widgets] as anchor text on 400,000 pages will have a neg. impact.

The problem is that using different anchor text sort of defies the point of setting this up in the first place. Also the process needs to be automated and rule based. For practical reasons and because of the system we use.

Any suggestions would be greatly appreciated.

[edit:] @tedster - do you mean putting something like:
[Widget] - [Blue Internet-tools] - fluffy and happy
[/edit]

Maybe you could find synonyms/alternatives that closely match your widget keywords? Play it safe if you can.

Could you make one of the 'words' into a graphic?

@tedster - do you mean putting something like:
[Widget] - [Blue Internet-tools] - fluffy and happy

Yes, that's the direction I'm thinking about. Adding breadcrumbs and doing it well is a big deal. You do want them to help the user - so they do need to match your website's taxonomy and architecture. But with each breadcrumb trail potentially including the word "widget" in anchor text three times or more, you're adding a lot to each page. That's the kind of thing that even made trouble back at the Florida update.

It's not too severe a restriction. After all, look at WebmasterWorld's breadcrumbs - we don't avoid ALL repetition. But we also don't include "Forum" at every level of the hierarchy, either. And the breadcrumbs were there at launch for us, and not a later addition. That can be a factor.

So it takes serious thought about your site structure and labeling to do it well. I've worked with sites where we spent MANY man-hours of effort over a few weeks to get those labels right.

UPDATE:

I promised a post on how the testing went. Here it is.

What I saw was that after the breadcrumbs showed up there was a spike in the rankings as follows:

Keywords w/ Page1 SERPs average improvement 2.6 positions
Keywords w/ Page2-4 SERPs average improvement 8.1 positions

This was followed by sharp dip (return to prev. rankings or worse positions) and then constant movement up and down over the past two weeks.

In general though the rankings have improved, but only slightly. However other factors such as PI's, time spent on site and conversions have improved slightly. Another thing I noted for the pages I tested was that there was a strong shift in exit pages.

I ran a small test using the [widgets]>[blues widgets]>[fluffy blue widgets] approach on a small sub-category. That sent the pages linked back to into a +/- 30 yo-yo which is still ongoing even though the links have been changed.

Thanks very much for following up on your results. I appreciate all the aspects, both Google-related and the uptick in your site's usability.

The small test of heavy keyword repetition in the breadcrumb trail is exactly where my concerns are. Sorry to hear that it triggered a problem, but I very much appreciate that you did the test and got back to us.

I haven't been reading too much lately, but my personal opinion and the followup you have posted seem to line up with tedster's opinion...

I would personally change:
[Widget] > [Blue Widgets] > fluffy blue happy widget
[Widget] > [Blue Widgets] > fluffy blue fast widget

To:
[Widget] > [Blue] > fluffy happy
[Widget] > [Blue] > fluffy fast

While making sure I linked to the page from the 'index' with the full 'keyword text' Fluffy Blue Happy Widget & Fluffy Blue Fast Widget...

So, links point 'TO' the specific page with the 'keyword text' (Fluffy Blue Happy Widget links to the Fluffy Blue Happy Widget Page) links 'BACK' from the Fluffy Blue Happy Widget page with the most emphasized keyword in the text of the link.