Your edit did more than just add links - you fixed other issues with the post.
I cannot say the same of the next edit. I would love to hear why two high reputation users approved an edit that adds redundant links and nothing else. How does that improve the post? I think you did the right thing by rejecting that edit.
Now, to actually answer your question, I searched around on meta, and I could not find a policy. Then, I searched around on Google, and could not find a best practice from a user experience standpoint. I went with the third option: find a similar site and see how they do it. I checked Wikipedia, and found their style to be extremely inconsistent. Fortunately for us, Wikipedia has a style guide for underlinking and overlinking. Here's an excerpt:
Generally, a link should appear only once in an article, but if helpful for readers, a link may be repeated in infoboxes, tables, image captions, footnotes, hatnotes, and at the first occurrence after the lead. [...] However, in glossaries, which are primarily referred to for encyclopedic entries on specific terms rather than read from top to bottom like a regular article, it is usually desirable to repeat links (including to other terms in the glossary) that were not already linked in the same entry (see Template:Glossary link).
Duplicate linking in lists is permissible if it significantly aids the reader. This is most often the case when the list is presenting information that could just as aptly be formatted in a table, and is expected to be parsed for particular bits of data, not read from top to bottom. If the list is normal article prose that happens to be formatted as a list, treat it as normal article prose.
I think we should adopt Wikipedia's policy. Our rule of thumb should be to link once unless adding a redundant link would significantly aid the reader.