What I'm specifically grappling with is not just the layout of a graph, but when a user selects a graph node and starts to drag it around the screen area, the line has to constantly be redrawn to reflect what it would look like if the user were to release the node. I suppose this is part of the layout algorithm?

Also some applications get a bit fancy and don't simply draw the line in a nice curvy way, but also bend the line around the square shaped node in almost right angles. See attached image and keep in mind that as a node is dragged, the line is drawn as marching ants, and re-arranged nicely, while retaining its curved style.