I think people preferred the original default privacy settings of facebook too. Also i'm not sure it was necessarily a "cooler" demographic but more a younger/newer/not myspace one. We may well still see Facebook suffer a similar fate as users transition to a more "fashionable" site in the future.
Did they have default 'privacy' settings? I just remember being able to view the profile of anybody who went to my university. I think the only reason I found it useful then was because I actually used it to meet new people in my dorm. Myspace at the time couldn't be used to find such specific people.
"You live on the 7th floor of Terry and like foo video games, I live on the 9th!"
