This is kind of dated, now, but I'm behind on my Technology Review reading (note to self: must subscribe!!), so I just saw this about Google & privacy:
In Google We Trust // Internet users should think carefully before relying on Gmail
Technology Review, Dec 05 / Jan 06
by Simson Garfinkel.
"Google's Gmail raises important questions about the security and privacy of our personal information -- questions that should matter not just to users of the free Web-based e-mail system but to everyone who exchanges e-mail with Gmail users.
"And since the technical underpinnings of Gmail might very well be the prototype for the next generation of desktop-computer applications, the answers to these questions potentially affect everyone."
There are some interesting implications for the future of "free" online services, too; Garfkinkel posits Google's users as products rather than customers.
Definitely worth a read.