Secondly, I don't think that Facebook's privacy controls were ever a big selling point. The fact that it was for cool kids combined with the fact that all of your friends were on it was a huge selling point. Yes, people use the privacy controls, but never the fine grained stuff, it's all "don't show info to people that aren't my friends."
Or maybe my perception was skewed. Facebook came to my school in September of my freshman year of college, so I'm literally in the exact cohort that grew up with it.