But I don't think it would work (and I'd totally work on something like this if I thought it would). People say they care about privacy, but when you present them with the option of paying $5/mo for a service that respects their privacy or using a "free" service that tracks everything they do and sells that data to anyone who'll pay, they'll almost always opt for the latter.
Now, I would certainly pay a monthly fee for a non-user-hostile social network experience. And I would consider the smaller user base a feature, so long as it wasn't too small.