The privacy violation could occur with Hotmail as well - I am sure cookie tracking is used to some extent. They would only get information from you if you actually clicked the ads.
As I said before, if you wish to keep your email private don't use web based email like Google / Hotmail / Yahoo etc. For that you should be using your companies email anyway (or even host you own email server).
I sure would love to read a story or hear from someone first hand that their privacy was violated by Hotmail.
I personally am so used to the Hotmail interface that I don't even pay attention to the banner ads.
I am not saying that GMAIL is bad for Microsoft because I am a MS developer. I think competition is great, it can only make Hotmail better. I just have a problem with the privacy issues.