If you are a Facebook regular chance is you have played around with some of the applications offered on the social networking sites. This ranges from the overly popular Farmville game over greeting cards, quizzes to fantasy football and business applications. Applications are anywhere and most users receive regular invitations to participate in yet another application.
Until now it was not possible to hide using an application from friends. That was a severe limitation for some Facebook users who would have preferred to hide the fact that an application was used from some friends (does your mother really need to know what sex toy you are?).
Well Facebook today announced a new feature that adds privacy settings for applications. This basically allows a Facebook user to select a specific privacy setting for applications that have been used.
The options range from enabling the application to only selected friends, all friends, friends of friends, friends and networks or anyone.

A lock will be displayed on pages that can be shared or published. Clicking that lock will display the list of available privacy options for that page.
These new controls give you the power to determine who sees the content you post to Facebook through any third-party application, whether it is on Facebook.com, your desktop, mobile phone, or from a Facebook Connect website or service. Seesmic, a desktop application from which you can view and update your News Feed, will soon offer extended privacy options so you can specify audiences for each update you make from the application, such as uploaded photos and status updates.
Applications on Facebook.com and external websites and services using Facebook Connect implementations have always respected your privacy based on what you’ve set in the “Posts by Me” setting on your Privacy Settings page. This setting will continue to be your default setting for all posts, and you can change it at any time.
The new privacy settings make sense and will be useful to many Facebook members. via The Facebook Blog
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Thanks for this information but it came out long back, you have explained it nicely
Privacy is improved which is a good thing, but i am facing new problem. Every time i select an application, Facebook logs me out and asks for password again. Even though i enter correct password it says wrong password and provides option to reset the same or enter text shown in image along with password, the twist is that at this stage when i enter the same password again along with text shown in image it accepts it and the whole process repeats again if i select any application.
I don’t know how many of you out there face this but its giving hard time to me. I did post it to them, waiting for reply from them.. i think it will take a loooong time…