Ahead of Mobile World Congress and an appearance by Facebook to explain its next moves in mobile, the social networking giant is coming under increasing strain over its use of users’ personal information. Mobile startups and operators are both fretting over the issue this week, as smartphones and the apps that come with them increasingly eclipse the feature phones of old. We’ve already seen how Path ignited the debate around privacy by uploading iPhone address books to its servers without explicit permission, just as many other apps have done without anyone realizing for some time. Path was by no means the only offender.

The latest accusation is being leveled at Facebook. In today’s Sunday Times newspaper, published out of London, a story (behind a paywall) alleges that Facebook has “admitted” to “reading text messages” during a trial to launch its own messaging service. Now, given that British Sunday newspapers have a tendency for crying wolf to help copy sales, we’re trying to ascertain what the substance of this is.

Here are the main allegations:

An investigation of phone apps by this newspaper has uncovered how: – Data — including the user’s location, the phone numbers of contacts and their Internet history — are often accessed via apps and in some cases transmitted to “third party” companies including advertisers. – Some companies can remotely control features on smartphones, including cameras, on which they can take pictures and video at any time. – Downloading some basic apps leaves people vulnerable to a torrent of spam and invasive advertising.

Suffice it to say that the piece largely repeats the recent stories in the technology media about smartphone app security and problems surrounding address books.

The caveat of course is that, as the article points out, companies are accessing this data “when people agree to the terms and conditions of downloading an app”. And, yes, most of us don’t read those. According to a YouGov poll for The Sunday Times, 70 percent rarely or never read T&Cs when downloading apps. Sounds about right.

The Sunday Times continues its shrill tone to repeat old news, such as how people are revealing their location and their Internet browsing history to third party apps. Shock horror. The question is, how much of this is consented to by users and how much is not? I guess we’ll be debating that for a while.

But it’s difficult to take a story seriously when it quotes a “smartphone entrepreneur” who “confessed his sole purpose for releasing apps was to ‘load them with advertisements’.” No kidding.

However this story does go to show that the privacy debate around the smartphone is entering the mainstream consciousness, and that’s something Facebook, and the rest, will have to deal with. Especially in privacy-obsessed Europe.

Update: A Facebook spokesperson speaking to ZDNet said there is “no reading of user text messages.” Facebook says the Times piece is “completely wrong” (what did we tell you?) but says the Facebook Android application permissions require SMS read and write capabilities.

Facebook said that lots of communications apps use these permissions, and the application technically has the capability to integrate with the phone’s SMS system, but added that it is for testing purposes. The company did not respond to the claim that the Times “admitted” to reading text messages, however.

Clear as mud then.