Right to be concerned
I recently worked at a small VOIP telco. Through our servers and billing records, we naturally recorded all sorts of data (user account, ip, number dialing from, number dialing to, call duration, time of day. . .). Both IP and phone number are subject to geolocation, and we had a legitimate use for that, so we did it. We didn't use the data evilly, but certainly our marketing team did get some aggregated views of where our callers and callees were distributed, and busy times of day.
But, supposing that we were evil, and had had some serious statistics, we could certainly have uncovered social networks, seen what businesses were local to our users and sent them ads, detected when users were home for the holidays, or at work (based on ip change), monitored which users placed calls from the same IP and derived inferences about potential relationships (residential ip, therefore family/roomate vs commercial ip, therefore co-worker), etc. We could tell that this user is probably working third-shift because of when they are placing calls, and send them ads for coffee, or figure that they are some sort of professional phone user because of the duration and frequency of their calling. We could see who they call most often and infer a stronger relation between those two entities. I'm sure there are even more possibilities that I am not thinking of because I am not a statistician.
My point is that even transactions that don't feel like they involve a handoff of information from the consumer side can be used to develop a fairly sophisticated model. I like google's services-- gmail is pretty slick, google maps works well and gives good directions, and google search is the best out there right now. But we should all put on our tinfoil hats when we think about the sort of shit google can throw together, e.g. in the innocuous example, where within a few minutes, shortly before 4:00 in the afternoon on friday, we google for a local boozer, get directions on google maps, and then send a g-mail to a friend to meet up. We then don't conduct any further transactions through google until maybe midnight (knocking off early, eh?). They have a whole stack that allows them to connect the dots, and unlike my piddling telco, they have access to very rich information through g-mail.
I don't think that the general public has a clear understanding of what exactly google collects or what they do with that information. El Reg is right to hammer google for claiming any sort of openness or transparency about their information collection activities-- like looking inside the sausage factory, I think many of us would be uncomfortable to find out.