Your privacy preferences may be meaningless in court. Yes, the settings you spend time poring over with every Facebook programming update may mean nothing when it matters most.
I recently spoke on this issue at a WSAJ legal seminar. The problem with talking about discovery of online social networking materials (Facebook, MySpace, etc.) is that the issue is just now becoming an issue. There is a little to report and a lot to wonder about. That being said, a lack of full answers is no reason to ignore partial answers.
Now we have another part. The rapidly developing case law took an anti-privacy turn in a New York court recently, where a judge ruled that there was no reasonable expectation of privacy for even private Facebook messages. The court went so far as to describe such an expectation as "wishful thinking." See the analysis of this case and others by Professor Ramasastry of the University of Washington School of Law.
On the bright side, courts have great discretion in discovery issues. The problem is that the existing legal framework, CR 26 (discovery scope, for laypersons) and the Stored Communications Act (laughably limited given its 1986 signature date) is difficult to apply given the new technology, its multiple functions--some of which are very public, and the malleability of privacy settings. More simply, many judges just don't understand it, and many lawyers are not doing a good enough job of explaining it.