There’s not an update or change that Facebook has made to either the tools available to users—or the terms of service they must agree to—that hasn’t gotten one group or another bent out of shape.

But the most recent and ongoing dust-up over its privacy policies has reached a new level of volume that has even the mainstream media tuning in, and threatening the very thing that could make Facebook such an important tool for the music industry.

It all started with the most recent F8 developer conference, where the Open Graph initiative was unveiled. I weighed in on this at the time by saying this was a positive development for the music industry. Then the backlash began—or rather, the ongoing discontent about Facebook that had been growinG for some time crystallized into clearer focus.

Tech blog Gizmodo posted a list of reasons why readers should delete their Facebook accounts. Wired began advocating the development of a Facebook alternative. Fourteen privacy advocates filed an unfair trade complaint with the FTC. Three U.S. Senators even weighed in on the issue and the mainstream press got involved.

At first glance, the raging backlash against Facebook’s privacy policies seems almost laughably absurd. How is it exactly that the very same people who use Facebook to share information about themselves get so bent out of shape when Facebook shares their information?

The answer, of course, is that users want to control who they share their information with. They’re open to sharing with their friends, but not with the advertisers and partners Facebook wants to share their information with.

The privacy issue is a dicey one, but an important one to the music industry. It’s been said over and over that the key to the digital music future is a service that can do the best job of not only delivering the music that users want to hear, but to introduce users to new music that they don’t know they like yet, and monetize the entire process. To do that, services need to know what kind of music you like in order to recommend other things you may also like.

The best way to make this happen is by sharing those musical preferences across multiple services, not by keeping those preferences in siloed stores on each individual service. If Rhapsody knows which artist websites you visit, or which songs you’ve recommended on other blogs, it can then create much better playlist for you than if it only has information about the music you listen to within the Rhapsody confines.

Facebook’s Open Graph has the opportunity to provide this level of insight. But Facebook needs to be much more careful about the way it both implements and communicates this initiative if the music industry is to benefit.

Regarding the implementation, Facebook needs to address the concerns that all it wants to do is route all Internet traffic through Facebook.com. The music industry knows all too well what happens when a partner has too much power. Look at iTunes. Calls for Steve Jobs to open up the iPod to competing services continue to fall on deaf ears. And Apple still doesn’t share any real user data with the labels other than their own sales spreadsheets. With Open Graph, Facebook would be in an even more powerful position.

Not helping matters are the many documented accounts of Facebook founder Mark Zuckerberg's at-best questionable ethics, as detailed by Mahalo founder Jason Calacanis.

A small revolt by a handful of Facebook users deleting their profiles won't be enough to force Facebook into addressing the privacy concerns leveled against it. Only pressure from the content partners and brands it’s hoping to do business with can do that. And here’s where digital music services working with Facebook—like Pandora and Napster—can play a role.

Regarding communication, much of the backlash Facebook gets as a result of its strategy would be mitigated if it would just do a better job of explaining exactly what it is doing, why, and how members will benefit. There’s a level of transparency that Facebook needs to embrace that when handled properly translates into trust. While Zuckerberg may like to replicate the casual approach Steve Jobs takes to his developer conference keynotes, it’s clear Zuckerberg is no Steve Jobs. Already, rival MySpace has chimed in with a blog post on its privacy philosophy, possibly hoping to attract some of the disenchanted Facebook base.

In the end, the more private a social network is, the less useful it becomes. That’s just a fact. Silicon Alley Insider’s Henry Blodget rightfully praises Facebook for its aggressiveness in showing how sharing personal data results in more personalized services despite the PR backlash it gets. And TechCrunch’s Michael Arrington says the whole backlash is nothing short of an out-of-control online mob unfairly targeting a company that is trying to “invent, on the fly, an entirely new way of organizing the Internet.”

And before you think that all this ruckus over privacy doesn’t extend to music (after all, don’t all fans like to proudly display their influences on their T-shirt, ringtone or online profile?) just see the story in Wired’s Epicenter blog about how Pandora makes users' personalized music stations public.

This privacy debate won’t be going away anytime soon. Personal data is a powerful tool that can be used to help create highly valuable and customizable solutions—but only if implemented and communicated properly.