I personally think that Microsoft should either buy or merge with Facebook, wipe the slate clean, redesign it Metro UI style, and charge for it. No ads, just a better overall service. I wouldn't hate Facebook so much if it were actually fun to use.
Either way, I feel they will always have a conflicted product vision so long as their users and customers are separate entities. Imagine a feature that's brilliant for the user, but terrible for advertisers? Well, hard luck, it's off limits. It's strange that one party is using and another is paying. It profoundly limits the scope of the product.
I agree though. The first thing to do would be to get rid of the advertisers and charge for it.