Re: Bad references
Yep, the issue with references is simply libel. The chances of getting sued are about zero as long as it's true, since "truth" is an absolute defense. (although you have to be able to prove your statements, and most people would prefer to avoid the hassle)
You can provide poor references without derogatory comments though, I have seen such a reference which basically said:-
"I confirm that $person worked for us from $date to $date, and I am sure they would be suitable for your vacency, assuming that that it is a junior position with adequate supervision".