Facebook puts privacy in your face from the start and you have such fine-grained control – most Facebook users have some degree of information hiding enabled.
I believe that culture of everything-is-public is what has fueled Twitter's growth, and is exactly why Facebook cannot compete directly with Twitter. Facebook is technically better in every way, but there is a cultural difference in the two communities that allows them to serve separate purposes even when Twitter's functionality is by all measures a subset of Facebook at this point.
Twitter will always be novel for introducing the short, sweet, live update to the world, but without expanding its featureset (which Facebook is, almost monthly), it will soon look like a toy.
Being completely open from the get-go is part of the beauty of Twitter. They should definitely add some more features, but the shear simplicity is quite nice.
It's like comparing the controls of a RC airplane to the cockpit of a 747: of course a jet has a ridiculously complex control system, it's a complex machine that's getting a lot of shit done at once. Any control you remove from a jet plane would certainly make it more "user-friendly," but it also becomes a less useful tool than it was before.
> what's the point of connecting if you're just going to hide everything?
Counterpoint: Where's the depth in your relationships if you cannot choose what pieces of information you share with whom?
Facebook's (stated?) goal is to represent real world human relationships and connections online in some way. That is complex and messy as humans are complex and messy. Facebook should not get rid of its myriad of privacy options as it's already built-in and necessary for way Facebook took off and grew (the whole point of Facebook was that it was private for college kids). It does certainly face very difficult UI and user training challenges that need to be solved sooner rather than later, if it can be solved at all.
Twitter took another POV and just threw the complexity out. Definitely hippie ("can't we all just get along") and definitely simpler and easier from a UI and back-end perspective. Not as useful, but you know what you're going to get.
Maybe Facebook Video is next; they already have the Youtubesque comments.
(Sorry, I just couldn't resist, willing to take the karma hit.)
Facebook: mom, brothers and sisters, and cousins, auntie delores, the dog, the hamster.
Twitter: peers, close friends.
No, they don't match, they don't compete.