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I think the main problem with Digg is the community. There's too much focus on the people and not enough on the content. This creates a sort of "timeocratic" social platform where the people that can spend the most time on the site control the site. On hacker news and reddit, submissions can rise to the front page solely based on content rather than social position. This allows new users to submit content, creating a more diverse upcoming feed, and more interesting content in the long run.

Adding more social-oriented features will simply amplify the submission problem for new users.

I dunno, being able to pick who's diggs/submissions you follow in a personal stream seems really damned useful to me. That way people I know create great content I can follow their digg stream to see what they're doing without necessarily needing to follow their twitter or the like. If people use it the way it seems meant to be used could be awesome.
I think the number of people that have useful content to you but are not writing a blog are pretty darn small, and are probably already sending you links through IM or email.
They might have multiple content streams that I want to aggregate, however. Or multiple substreams (for example, blog categories and I might only care about half of them). Being able to roll all that up into a single feed without bothering with something like yahoo pipes might be handy.
So let me get this straight: You're a person who knows someone that doesn't want to start a blog but cares enough about the links/content they want to share that they will log in to Digg.com and categorize them properly. Oh, and you don't want to bother will yahoo pipes.

Talk about a niche...

Starting a blog just to re-distribute content doesn't sound like a proper solution to me..
I keep hearing about that, but how is it different from the pages in your profile?
Not sure if you knew this or not, but reddit has had this functionality for ages. Add people to your friends list, and go to /r/friends. Alternately, you can pick up someone's submissions rss feed, and I believe even their likes and dislikes if they opt in to make them public.
But does reddit let you claim RSS feeds and auto post them as submissions? Supposedly Digg 4 does this.
No, it doesn't. It's come up in /r/ideasfortheadmins before, but I don't recall hearing any official word from the admins on it.
I agree the main problem with Digg is the community as well. The broader Digg community just isn't interested in the kind of content that I am. That doesn't mean they all aren't though. I'm sure there are a lot of people digging quality content from good sources, ie Fast Company and The Nation, but their submissions and Diggs get lost in all the other crap the majority of the community is submitting and digging.

The way I see myself using it would be to subscribe to feeds of primarily publishers, like say The Economist, FT, Fast Company, Inc., PopSci, blogs, etc. just like in RSS.

But rather than seeing just a straight stream of their updates, the social voting aspect of Digg will help highlight some of the best content coming from these sources.

I don't expect to be discovering the latest Suster, Wilson, or Dixon post from the new Digg. HN and Twitter already make sure I see stuff like that, but not the broader realm of publishers who produce content that I would read...but they never get in front of me know.

Sounds like a google reader on steroids. I'd use it.
From the video, it looks like their target audience would be excited by a tagline reading:

Digg v4: now with more Facebook!

The styling, the focus of the UI, wow. I mean, sure, it'll probably work, but yikes.

I think I'm going back to slashdot instead :)
I've been working on a site for the better part of the past year that I made to try to address a lot of the issues that caused me to leave Digg and to a lesser extent Reddit called http://chirplinks.com and Digg 4.0 is getting dangerously close to some of the ideas I had when I first started building it.

As the OP mentions, as the Digg community grew larger the frontpage stories became less and less relevant to me and frankly, pretty crappy, and I found myself pining for the days of old when Digg was largely a tech-geek community. The big reason I spend most of my time on HN is because the demographic is a lot more focused.

The light bulb moment for me came from my time playing with the Twitter API and getting more into Twitter in general. I had spent all this time cultivating my friends list on Twitter and I was getting a lot of great links from them, but not enough to where it would replace a good bookmarking site like HN or Reddit. It then occurred to me if there was a system that would intelligently start adding my friend's most trusted friends to my social graph based on the links I click on, save, hide, dislike, etc. I could build out my own social bookmarking community that was highly focused in on the things I am personally interested in.

So a friend of mine and I built it and actually just recently (quietly) took it out of closed beta to get some feedback. If anybody is interested in trying it out, feel free, although to get the full effect you need a Twitter account with a decent amount of friends. We plan on removing this restriction though so that anybody can jump in, pick a few topics of interest, and start growing their mini-Digg so to speak.

The problem I see with Digg is that they're trying to become yet another social network (YASN as I call it). I honestly can't see myself going through the process of finding friends all over again - I barely put in the effort to manage Twitter and Facebook. We built Chirplinks to work perfectly well without a full network effect. We figure why force users to build another circle of friends when they've already done that on other sites.

Anyways, I'd love to hear some fellow HNer's opinions on it, even if you don't want to try it out just feedback on the general concept would be awesome.