It's an improvement over data sitting in a central silo waiting to be mined and monitored.
I think this is a perfect example of the subtlety of the issues. Let's imagine that Diaspora succeeds and Facebook, MySpace, and Google+ all adopt its federation protocol; in that case it's likely that all of those companies would have access to most of what you post, effectively reducing privacy.
To give a specific example, if you friend someone on Facebook from Diaspora then Facebook would probably have cached copies of any data you publish that is accessible by that friend, including all your public data. (I guess you would have to agree to Facebook's TOS when you friend that person, even though you don't have a Facebook account.)
I think this is a perfect example of the subtlety of the issues. Let's imagine that Diaspora succeeds and Facebook, MySpace, and Google+ all adopt its federation protocol; in that case it's likely that all of those companies would have access to most of what you post, effectively reducing privacy.