Giving the government the power to read your email, tap your phone, and record your porn usage isn't bad simply because it's embarrassing. After all, the data will likely only be seen by a computer. But it gives the government enormous power to make decisions about you -- decisions about whether you may take a commercial airline flight, get a security clearance, get a job, or even be indefinitely detained -- without your knowledge or consent, and without you knowing how they make the decisions.
Recall the stories of people getting on the no-fly list with no appeals process and no way to find out what information had been used to put them there.
In short, a lack of privacy gives the government the power to be even less transparent in its decision-making, and gives it yet more power over its citizens. It's not a question of discovering your fetishes or being embarrassed, and we shouldn't act as though having nothing to hide really is an excuse.
There's a rather good paper I can recommend on the subject:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=998565
(I've posted this several times over the past few months, so this is half self-plagiarism)