It sounds totally feasible, a great idea.
If I’ve understood you, this equates to a simple “homepage” building app. User fills out some details (their profile), selects the template/skin they like, chooses a public name for the site and clicks publish (similar to the August 31 Dev Update demo).
Creating a public directory might not be that hard too, so users can find other users. Each user could maintain a list of other users they know, saved in their own storage (as an SD), and these lists could be shared to create a public network/directory of connections so users can find other users.
I don’t see a privacy issue here because if you create a public profile, you would want people to find it.
I think that would be a great little app to help bootstrap activity and provide interest / something to do after you’ve installed. Much better than the SAFE Webring! 