As I tried to point out in one of these other Gmail threads, Google is very good at electronic searching. Humans don't have to root through your old stuff for there to be a privacy issue...
The issue of privacy comes up just because that information is archived. As long as it's possible for personal information to be used in unexpected ways, it's a problem if large repositories of it are maintained. What're they going to do with it? Who else can get it? How long will they keep it? Why won't they let me delete it?*
If Google really intends to archive all of the Gmail messages on their servers, they're going to have to make it absolutely clear what that information will be used for and how, who's going to use it and for how long.**
On the other hand, I don't really object to their serving me ads beside the messages (it'd probably be nicer to have a slightly relevant text ad than it is to have those awful, irrelevant, low quality gif and flash ads that Yahoo serves).
*Would you let Microsoft, Ford, GE or the tax man keep all of your emails forever? I know, Google is Google, not any of these, but what is the salient difference? We already know that a number of airlines have recently turned over passenger records the the US government without permission - simply because their privacy guidelines did not (at the time) expressly prohibit it; and passenger records don't really provide much information compared to email.
**I must say that, from reading the privacy part of the gmail site, the 'email non-deletion' issue seems more like a legal manouver to get them out of wiping every hard disk, tape or other backup that ever had any trace of your messages on it, no matter how small...but they'd better make it clearer than they have so far.