I think one problem is that users want more than just share and hide information selectively. I want each of my "friends" to believe that I share everything with them because they are soooo super special.
If my "friends" know that I'm hiding something from them, they feel bad, and they may not be my "friends" for much longer.
But is that true of business contacts, casual aquaintances? Some guy who's going to sublet your apartment while you're on sabbatical?
I would hope that my friends don't feel left out if they aren't getting my complete output stream. If someone did, I would find it odd and possibly creepy depending on the context.
I agree that in many cases it shouldn't be a problem. But if everyone has one or two real friends who might be disappointed, that's enough to destroy the idea.
But it probably depends on whether people use social networks for managing a broad range of contacts or to keep in touch with close friends and family.
The general problem is that some things can change dramatically as soon as they become explicit, even when nothing of substance has changed.
If my "friends" know that I'm hiding something from them, they feel bad, and they may not be my "friends" for much longer.