How would people feel if there was a similar MSN service that did the same thing - do some just trust Microsoft more than Google? Google couldn't do this without the ads and they are far less instrusive than banner ads. Sometimes the ads are even useful.
Wait a year and see if Gmail is still going - if it is, there are people not worried about the ads and without privacy concerns. Why are people worried about Gmail but not Google Search - which also targets ads based on content. And all those websites that
use Google AdWords?
changed. Gmail's policy had also been changed - you can permanently delete email.
People are free to use Gmail or not (if they do eventually offer it). Just like some choose not to use Hotmail (except for one-off subscriptions or downloads that require an email account to send to).
What I do think though is that no one company should have such a large market share - Microsoft would probably innovate more if they did not have such a large desktop market share. I think this may change in the future with more companies adopting RedHat/SuSE