This example seems to suggest to me that it is well within Facebook's collected trove of data and technical capability to start asking more pointed questions, if the engineers are bold enough to keep asking. It's not so hard to imagine a follow up asking, "Are you and Nick Smith engaged?" Or prompting me to confirm something like "Is Marjorie Watson your mother?" based on our shared last name and frequency of her posts on my wall. "Engaged" and "mother" are clearly defined social relationships. Though Facebook offers a lot of options for relationship status including civil unions, domestic partnerships, and the all-encompassing and fraught "it's complicated," it's the regimented nature of this defined set that gets me worried. Our programs and their programmers are making design and engineering choices that have the potential to influence how we think of and define ourselves on a broader scale.
The fact that Facebook asks you to categorize yourself is off-putting to a lot of people. And writers have pointed out before that Facebook overreaches, occasionally without intending to do so, unless you consider the purpose of the entire site to be a massive effort to get all the information it can. In Jose Antonio Vargas's profile of Mark Zuckerberg, he (Vargas) describes being stumped for hours after Facebook asked him to choose whether he was interested in men or women--personal information that Vargas, who is gay, wasn't quite ready to share with his whole network. Zuckerberg's response is mild confusion that Vargas wouldn't want people to know that.
Ms Watson's concern isn't so much about privacy--as she says, anyone looking at her page could gather that she was on pretty good terms with the guy in question--but with the fact that Facebook's way of seeing may affect how we see ourselves. This is the argument of Jaron Lanier's (very interesting) polemic You Are Not a Gadget: If you keep being asked to describe yourself by your relationship status, the music you like, and so on, and reading about other people who describe themselves in the same way, you may come to give those things more weight than you used to.
I can see it going another way. Think about Wikileaks. Julian Assange has said that the goal is anarchy rather than transparency--that people won't be able to keep secrets, therefore they won't be able to do all their important secret government/power business, therefore they won't be able to have government at all. I doubt it with regard to government, but I can see an analogous theme developing in the social space. If we're being asked to categorize your relationships in a way that doesn't quite feel right, we might opt out of the categorization; "you have control over your data," writes Alexis Madrigal, in an essay that Watson cites.
A related response would be that these not-quite-coerced categorization requests force us to confront the limits of categorization in general. As Watson says, social relationships like "engaged" or "mother" are clearly defined. And they are, relative to the more amorphous relationships--friend, colleague, mentor, nemesis, etc. But they're not perfectly defined; most of the words we use for relationships are heuristics. And people do seem to resist Facebook's view where it deviates from their own; in everyday conversation, we maintain a distinction between "friend" and "Facebook friend". The site, with its cheerfully reductive view of the world, might have the effect of unsettling our assumptions about social typologies rather than reinforcing them.