On Wednesday (05/05/2010) facebook disabled the live chat function after a bug that allowed users to eavesdrop on their friends conversations was discovered. The site also took emergency action to correct a separate hole that allowed users to see their friends pending friend requests!!

This appears to be a result of a new "preview my profile" service Facebook added late last month in an effort to give users more control over their privacy settings.

In a statement issued facebook said it temporarily suspended the chat function while it patched the information leak. 
Over the past month, Facebook has been under siege by a variety of critics who say the site is imperiling the privacy of its 400 million or so users.

Ref: http://www.theregister.co.uk/2010/05/05/facebook_eavesdropping_bug/