I really think there is a HUGE gaping hole for a competitor to step in and really hurt Facebook. If someone brought out something that had sane support for what Facebook calls 'lists', they'd kill it. The biggest problem with facebook is that using lists is really difficult. You can set a default that's really narrow or you can set a default that's really broad. Restricting status updates is really error prone as they provide very little feedback about what you're doing.

If someone built sane grouping with a nice UI to support and built that out as part of a larger privacy play....I think they could go a long ways.