I use border: 0 rather than outline... but same effect and whichever is fine.
Only real issue is keyboards. If there is a rollover, all is fine. If there is no rollover you should never remove the dotted outline as it is the only way a person knows which link they are on tabbing through the navigation quickly with the keyboard. So you must always have some way the user can tell where they are when tabbing through links. If uit has a rollover, yea, kill the border around them.