This seems like a fundamental flaw in the client-server model when hosting social/personal information. The server host must pay the electric bill (3rd party) leading to a natural conflict with the interests of the user.

I'd like to think that there is a market rather than regulatory solution. But the story of Zero Knowledge Systems (http://en.wikipedia.org/wiki/Radialpoint#History) shows that retail privacy did not find a market during the DotCom boom. Perhaps highly sensitive social network content will change that.