I'm not a big fan of social networking sites, but last.fm is different. It actually has a point - you can use it to discover new music, keep tabs on your more distant friends, create groups, track events etc. It's useful and actually fun to use.
One thing I think could work better is the Taste-o-meter. It seems it's also the basis of the Neighbours feature. It could be a little smarter - instead of just counting the artists two users have in common, it could compare the relative rarity of that particular artist. Everyone listens to Foo Fighters or Tool or DJ Shadow or whatnot but that doesn't mean they actually have anything in common. This creates the anomaly where someone with 40 000 played tracks is suddenly neighbours with everyone. Now if two people both listen to an obscure Finnish accordion-jazz ensemble, the chances are, they have a lot more in common as well and that they should definitely check out what other tracks they've played.
I thought this idea was pretty cool so I sent it in to last.fm but they never even acknowledged it, so I thought I'd stick it up here instead of just having it vanish into the ether.