Just so I understand this correct, if everyone is only sharing things explicitly with friends or friends of friends, doesn't that render the open social graph search useless?
A lot of the information this searches can't actually be locked down by privacy settings anymore, as far as I can tell. Facebook made most profile information public for everyone whether they wanted that or not.
On the advertising side, I don't think it matters what the sharing settings are. We have been targeting on very specific parameters with quite a large reach for a while now.