I don't think that any site that tries to combine the entirety of the social graph with contextually agnostic personal content will ultimately be successful - in other words, no one wants a site where everyone they've ever met can see what they're doing all over the Internet, and this is what Facebook seems intent on creating. It's more than just a pure privacy concern (where privacy means restricted access to personal information) - there's also filtering issues, with my 'friends' being exposed to/spammed by content I create that simply isn't meant for them.
For what it's worth, I'm also actively working on an alternative to Facebook, which will be a tool for users to partition their online social network to match their real-world social contexts, and then use those partitions to manage their 'friends' lists on the myriad other sites where people already share content (Flickr, Foursquare, Vimeo, Twitter, and so on).
I actually think Facebook is doing the public a service by being up front with the lack of privacy you have on the internet. Do not ever, ever assume that you can hand over your private information to a corporation operating under US privacy laws and hope that they'll treat it respectfully (by some conservative definition of respectfully).
Social networks, by their very nature are about sharing personal information, and anyone thinking otherwise should ask Facebook for a refund.
I'm rather surprised nobody has made a peer authentication thing for PHP-BB or similar, so that members of on one of the many forums running on this platform can 'visit' another website and cross-post, if you see what I mean.
for that matter I'm surprised Google Wave hasn't been polished up yet - you'd think Google would take advantage of their enormous user base and prior experience with Orkut and Buzz etc. to offer robust group communication with the requisite privacy controls by now. It's not like they don't have all the necessary components.
The network effects of having every friend and family member you have on a website is very hard to beat. Google is trying. Yes it can possibly be done, but a couple of privacy tweaks won't do it.
Once Mark Zuckerberg loses people's trust - which it seems he is doing so now, he can never regain it.
My plan so far, for social networking, is a medical/health site, probably using BuddyPress on top of WordPress. I realize that BuddyPress may not scale, nor compete with FB but work be a good first step for a minimally viable network.
End of the day, I guess it is a business and every business just cares about their profits and keeping investors happy.