Photo albums do play an important role in building the argument for a "social network". I don't think anyone will take the difficult path of joining diaspora + joining other sites for sharing photos. They can simply join any other existing social networking site where they can upload photos and share them in the same platform. And, from my experience, chat and photos are the two features that still forces users to stick to conventional social networking sites like Facebook even if they are aware of privacy infringement.

Why can't we have a photo album that has privacy options similar to posts? Each photo is a post that can be commented/shared.

+1 for albums

We should deal with that smartly, and use tags to regroup posts containing photos. We could also possibly use the old beta profile, which was really nice to display images.

I'd like to add three things:
1) I completely agree with Balasankars last post.
2) An advantage of a tagged-post system over a directory system is that you can easily put one photo in multiple albums.
3) As a fix for the problem of adding new contacts, I propose the following: when you're viewing one of your aspects (i.e. the list of people in it), every contact would have a field for setting the point in time after which posts in this aspect are visible to the contact. By default, this time is set to the moment when you added the contact to the aspect, but you could move it back in time.
It would also make sense then, that, when you remove a contact from an aspect, he would remain there (greyed out), but with another field added, stating the time of removal (unless no post were made to this aspect during his being-in-it).
Finally, I think it would make sense if the poster could see which aspects he posted a post to (e.g. when hovering over "limited" - this information is already stored anyway, since you can filter your own posts by viewing different aspects). These features combined would make it 100% trackable whether person X can see post Y.