Do you know what your privacy setting are in Facebook, Myspace, or Twitter? Most people just take the default settings which are not very private. But you say, of course their not private, it is a "social networking" site after all. Social networking in Web 2.0 doesn't mean showing your embarrassing pics from last night's party or in the bath pics of your 5-year old to absolutely everyone!
Most people who have spent a bit of time looking into the privacy settings on Facebook (my favorite), for example, have learned to restrict certain parts of their profile to only their friends and also changed the default access to at least their network (which by itself can be a couple of million users!). A recent article from heise online provides some additional information on this topic. It is an interesting challenge to find the right default design point regarding privacy when the essence of the site is social sharing. Web 2.0 introduces lots of interesting challenges like this to designers.