The City of Bozeman, Montana will no longer require Facebook passwords as part of its application process, as reported in Delaware Employment Law blog. That was a risky decision. How many applicants would pass up this relatively large employer (in that neck of the woods) if they have to reveal too much. Too, the city is a government entity. Requiring a Facebook password would present privacy issues the city need not face.
But, take this as a warning – there may be more employers out there considering such a measure. The best protection for any employee is to simply be careful about what you put on Facebook, Myspace, etc.