How is it possible to launder bitcoins? Some services, such as bitcoinlaundry.com, claim that they can launder your bitcoins.

Since all bitcoin transactions are publicly logged, how is this done? Wouldn't it be possible to trace back the transactions and find out the initial address?
Say I received 10 bitcoins on a Bitcoin address I publicly advertise for donations. Anyone looking at the blockchain can put that address in a search engine and find me. Now say I want to use those 10 bitcoins to buy drugs. If the drug dealer's bitcoins are traced, they'll point right back to me.

Now I can create a lot of accounts if I want. And I can pass the 10 bitcoins I received through those accounts and then to the drug dealer. But likely because those accounts aren't used anywhere else, the trail would still lead right from the drug dealer to me.

Now suppose I put my 10 bitcoins in an account created just for me by a Bitcoin laundering service. And you and Fred do the same thing. Then the service sends my coins to Fred and your coins to me. Then I spend the coins I got on drugs. Now the trail looks exactly the same as in the non-laundering example, except the  trail leads straight to you instead of me -- a pretty good deal for me, not so much for you.