Opt-out sites would be more private, but would offer less in the way of features, functionality, and personalization (both directly and indirectly because of the massive hit to monetization).
In particular, I don't think many people realize just how many features on the modern web are enabled by anonymized analysis of large scale logs. A short list:
1. UI optimization via event logging 2. Features like priority inbox in Gmail 3. Bubble up in search rankings 4. A/B testing 5. Google Analytics (determining backlinks to your site) 6. Disqus login for blog commenting 7.
While the proposal is about opting out of "third party web tracking", it is not obvious what a third party is. Is a YUI, Google Analytics, or Facebook Connect plugin which I chose to integrate into my site "third party code"? What if I have a business account with something like Crazyegg.com -- can I put their JS heatmap tracking in my webpage to figure out what buttons my users are getting confused by?
If this is complex for hackers, do you trust the government that thinks the internet is a series of tubes to get this right?
Finally, there is one throwaway sentence in the article which deserves underlining:
It also wants to ensure that any restrictions do not impede law enforcement and national security efforts.
Translation: the government will want Google and others to track you anyway, so that they can find you. So this is sort of reversed: true privacy legislation would mean the guys with guns wouldn't be able to track you. I'm a lot more scared of them than the guys trying to sell you "one weird old belly trick".