It is just as bad or worse. You have to move the data in/out of the country. It definitely isn't protected when it leaves the country. The only advantage I see is that it punishes US businesses for failing to protest.
Absolutely!
While it's true that they are victims, they are in a far better place to demand change or to defend themselves. Money buys the ears of lawyers that the average person couldn't even afford to speak to.
Fighting the USgov isn't a decision to take lightly regardless of how much money & resources you have. I cannot condemn a company that backs down from that battle. It could hurt an employee(s) significantly, or the whole company. While I agree they have the most resources to fight it, they're not immune to harm from USgov.
Unless of course, what you referred to is that most of the traffic goes via the US soil anyway. But then again, why to stay in the US? Move whole business and yourself abroad :-)) Ironically, I found much, much, much more freedom in post communistic Poland than - oh irony! - Land of the Free.
After all, those countries wouldn't be 3rd world countries, if they had the power to resist US threats/requests. Or they are part of the "axis of evil" (or whatever the current propaganda term is), in which case the internet connection to that country could either be cut off, or be heavily censored, if it isn't already happening.
For example I also live in a small EU country. By no means this is a 3rd world country - we have pretty strong IT industry (e.g. some globally successful antivirus companies etc.) and the country is certainly developed enough to host companies providing SAAS. Yet we have certain advantages against the US:
1. our government is way weaker than the US government - their resources are obviously not even close and they would not be able to do what US government does even if they wanted to. But we are still an EU state and we can use EU as a shield when Americans come knocking.
2. it is a post-communist country and people still remember the experience of living in totalitarian/authoritarian country. Opposition against any sign of 'bad old times coming back' seem to be much stronger than the opposition of common American people against recent freedom-stripping. For example there was a proposal that our internet providers should be required to block un-licensed online gambling. The public backslash against 'censorship' was so big that the plan had to be abandoned in few days and the politician who proposed it had to apologize. Many things that are now normal in US or UK and some other western countries would not be possible here.
3. we are still an 'American ally' but the US are not nearly as popular with common people as they used to be here and anti-Americanism seem to be growing. Many politicians exploit that and see opposing to American requests as an easy way to score political points (we have seen this for example when US government wanted to build a part of their missile defence system here).
I am much more worried by corrupt workers in my ISP or telephony provider than I am about my government.
Many governments are much worse than the US; they not only snoop on data but they imprison or kill people as a result of the things they find.
I'd be interested to hear about countries who will i) stand up against the US & ii) not be at large risk of corrupt employees.
(http://www.freedomhouse.org/report/freedom-net/2012/egypt) etc.