BKMHattitude -- Sure!
Pinkpjs -- Exactly.
KitteroVintage -- We have much interesting work in-progress right now on item search. Stay tuned!
Other admin can speak more authoritatively to the overall ideas behind Circles, Activity Feeds, etc., but I can give you a bit of my perspective.
We do want people to connect with each other on Etsy, but for the purpose of more meaningful, more engaged commerce. The more connected you are to the marketplace and the people in it, the more you will engage and participate though buying, selling, curating, etc. This leads to more sales and greater opportunity for sellers.
That's my understanding of things and, so far at least, the numbers seem to support the basic ideas. (You can always view the latest marketplace numbers on the blog - www.etsy.com/storque/search/tags/weather-report/