I have seen squirrel scarring like this in tree tops. I don't run across it often, 2 or 3 times a year.
Treeseer: I don't know if installing baffles at the bottom of the tree would deter a squirrel for long, especially if there are other trees in the area that would provide access to the canopy of the tree. Tabasco sauce is a good idea. I have a similar method that I use which works for all manner of critters (yellow bellied sapsuckers, aphids on roses, squirrels, you name it). I take five garlic cloves and five cayenne peppers and puree them in the blender. Mix that with a gallon of water and add a tablespoon of molasses (for residual value) and a tablespoon of citrus oil for good measure.
Squirrels are creatures of habit. They have a route that they follow every day. They do not deviate from this route. Have you ever watched the little tree rats after your done with a takedown that was part of their route? Drives em nuts. They will circle around back and forth from one tree to the next trying to find a way into the tree which was just removed from their route and exists no more.