For one, there doesn't seem to be much that's changing at all in the ways Google is either collecting or using the data from its users.
The main change is that from 1 March 2012 any data Google may have collected about you can be used in its provision of a service other than the one from which the data originally came from. To use an already abused example, your YouTube watching history may affect the search results and/or ads you see on Google's home page. No more data will be gathered by any of the Google's services due to this change.
When I first read about this, my initial reaction was along the lines of:
What? Are they not already doing this?
I mean, when you think about it from an average user's perspective. Whatever Google service I use surely I have an impression I am dealing with the single business entity. What does it mean that Google owns and operates both Picasa and YouTube than they are integral parts of the same business entity. And business entities tend to share internal information freely. And not only that. The ones who are better at sharing internal information tend to be better at what they do. And I mean it both for their bottom line and for their customers. Because, and regardless of what someone may be trying to tell you, companies live and die on how successful they are at satisfying their customers' needs.
So, it seems at least only natural for Google to want to do so. It's a survival strategy.
But, you may ask, what about the users and how their data is being used? And you'd be excused for asking that question because every journalist and politician - and their collective dog - are currently up in arms about just that. The problem is, as hard as I concentrate, and as many such articles I read, I cannot quite see what is it really that they are complaining about.
To be honest, the best articulated complaint I've seen so far is about how this will affect serving of ads in various Google services. I'd even dare to claim that this is the only thing everyone seems worried about. OK, apart from the politicians who are (well, may be) genuinely worried about potential for abuse. Which is probably due mostly to their not quite understanding of the issue, but having to do something because the press is up in arms.
Maybe we should remind ourselves what is going to happen. Repeat after me:
The information Google already holds about me is now going to be more widely used throughout Google's products and services. Whenever I am logged in. No more information is going to be gathered. No existing privacy settings and mechanisms are going to be affected.
So, setting aside for the moment the issue of Google accidentally losing your information (or giving it away to law enforcement), the only thing that really changes for you - the Google user - is that you may see a bit different ads and/or search results while going about your business on a Google operated site. Some would - probably correctly - even argue that you will be seeing better ads and/or search results. After all, the more you know about a person, the better you can guess what they might want in the future. Stands to reason, really. And if you want unbiased search results just log out of your Google account and go for it. And if you don't like seeing ads that's easy as well: AdBlock works on most browsers you care to name. And if it doesn't work on yours - you should change your browser. (And if you want to know why I still carry ads on these pages, please head here.)
Even if we now go back to that possibility of your data being leaked, lost, and/or handed over to law enforcement we are still no closer to comprehension because this issue is not affected at all by these changes. Nota bene: I am not saying this issue does not exist or that it gets any better with these changes. It doesn't. But it doesn't get worse either. All the data is still there - it's just a few extra links between the databases.
And let's be clear: exactly the same argument is valid for any other company that holds data about you (Facebook comes to mind, natch). The fact that some of them have less tentacles down which to spread it is beside the point. Just you wait for Facebook to branch off into something or other in a few years' time. After all, now that they went public (interesting analysis of Facebook IPO here, and do follow the links therein, too) investors will sooner or later demand they "diversify".
Stay safe, stay sane, be reasonable.