Please include in the discussion that Germany has one of the most powerful privacy protection laws, the case is not so much about the business model of Facebook as about its relation to the German laws. The legal discussion in Germany is pretty much about small details, like who is permitted to get which data and how Facebook has to inform German users about changes to the TOS or the whereabouts of their data.
Especially the handling of photographs is critical in German law, which has absolutely no humor about stealing pictures of you from social networking sites... the "Bild" tabloid does it pretty often, and often shows the wrong person of the same name.
The German law is pretty clear on that one: Facebook needs your formal permission to host it, and let other people see it, but is not permitted to distribute it outside the frame you allowed - if a photo is private and for your friends only, Facebook has to take care that it doesn't violate it.