From what I heared here and there, one of their plans is try to "embed" Facebook, allowing people to view Facebook info or switch to "private" P2P mode when the other one has diaspora that. So it's not either/or.

Concerning hosting, yeah there's google etc, but as they seem to have discussed with Elben Moglen, they will possibly also consider his ideas about self-hosting on small pluggable computers. And yeah, you probably already hava one: your DSL box. Some providers could play a a cool move on this one.

edit: I don't know if they will have the time, but with encrypted replicated data and external data stores, many things are possible. E.g. you could host the most sensible personnal info and links on your box backed up somewhere and have your photos at Flickr.