DDos attacks and manipulative trading practices are two of the strongest reasons we are seeing large price swings in Bitcoin trading. It's common knowledge that Mt. Gox has been the target of several strong DDos attacks during these recent weeks. When the trading engine goes down, we see a lot of panic selling. Mt. Gox is working on a new trading engine that will run separately from it's website, making it less vulnerable to DDos attacks.
A lesser known issue is manipulative trading. Malevolent traders will flood Mt. Gox's trading engine with small fractions of Bitcoins. For example, a sell order for .01 bitcoin would only result in $1.20 (if bitcoin is selling for $120.00). Submitting numerous orders like this is impractical, unless the intent is to give the impression that Bitcoin prices are falling to sway speculative trading decisions. Additionally, the large volume of small orders clogs the trading engine causing increased lag.
Mt. Gox has started limiting the number of "mini-transactions" a trader can submit and capping these transactions during high trading times. These elastic "throttles" will allow some small trades but automatically limit the trades depending on the needs of Mt. Gox's trading engine.
The market swings seem to have reduced over the past few days, perhaps these measures are beginning to work? Only time will tell.