BuddyPress is a set of plugins for Wordpres mu, those will transform the multi user wordpress into a social network. BuddyPress is under development for quite some time, yesterday version 1.0 is out, like WordPress it is released under GPL.
BuddyPress current features include Extended Profiles, Private Messaging, Friends, Groups, The Wire Activity Streams, Blog Tracking and Forums. Upcoming features include status updates and Photo albums.
The extended profiles include user details, some defaults and other chosen by the administrator of the site. Private Messaging allows members to contact each other with short messages. Friends plugin allows users to add other users as friends like any typical social network. Groups will allow members to setup groups on various topics and discuss things on forums. For forums you need to install bbpress, another Automattic product
Installing WordPress Mu is a bit tricky compared to WordPress and so BuddyPress. You can install buddypress on a shared host but you can’t get all the functionality of wordpress mu in that case. So this is not for everyone at the moment, but it adds a solid foundation for creating a social network for a niche or for a group of enthusiasts.