When a sufficient amount of URLs, or segments of a website are marked as “low quality” by the filter algorithm “Panda”, then the entire domain will be considered as such. Having said that, it is possible that “high quality pages”, segments, or URLs (those that are not marked as “bad”) can still keep a good ranking position.
One other specific piece of guidance we’ve offered is that low-quality content on some parts of a website can impact the whole site’s rankings, and thus removing low quality pages, merging or improving the content of individual shallow pages into more useful pages, or moving low quality pages to a different domain could eventually help the rankings of your higher-quality content. – Google Webmaster Blogpost about more guidance on building high-quality sites
To get rid of the penalty caused by the Panda Update, you should either improve or delete/de-index the low quality content/pages.
Google advises all webmasters to keep an eye on the user experience during the creation of new content and not focus on possible ranking signals or algorithms.
Our advice for publishers continues to be to focus on delivering the best possible user experience on your websites and not to focus too much on what they think are Google’s current ranking algorithms or signals.– Amit Singhal, Google Fellow, Software Engineer