Facebook was letting friends spy on each others' chats, via Valleywag
"Privacy settings" - this term means whatever Facebook wants it to mean for their purposes at any given time. It does not mean what users think it means, i.e. protecting their online privacy.
See also 10 Reasons to Delete Your Facebook Account. Although item #9 is weak, some tough points are made against Facebook's business practices. Click on the links throughout this piece to explore these issues further. Very well done.
Update: the author of the above just posted a followup on his blog.
Some would argue blogging on a Google service isn't much better, and that may be. There are too many security lapses on Facebook for my comfort level, however, and the M.O. of the company seems to be to entice users into becoming comfortable with making personal information available and accessible online so they (Facebook) can own, mine and exploit it for their own purposes. I choose not to participate in that.
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