It would be great if there's an option to blur out people's faces during the photosynth. As I take pictures of busy places, I can't avoid the people and at the same time, I would like to protect their privacies.

It would be easy to blur their faces before putting them into photosynth but, I can see how that could take a long time if you have hundreds of images. I think it might be a better idea to just remove the people altogether. If photosynth has enough pictures it should be possible to take the background texture of one picture and paste over people using transform but that would degrade the quality. At least you wouldn't have people in the image though.

Do people really care of being (unknowingly)in the background? Afterall my image must be scattered around the globe after international holidays. Is this just another unnecessary area of "political correctness!".

Different countries have different views, and LAWS, on "public" photos. In the U.S. there is generally NO assumption of privacy if one is in plain view in public. I have been informed that the opposite is true in France. I suspect there is software, possibly even shareware/freeware that can automate the process of face detection and blurring. I'm pretty sure GoogleMaps and BingMaps have implemented such privacy processing in response to concerns voiced. Ultimately, it is the individual synthers decision how to handle this issue.

You MIGHT find a solution here (fyi, I haven't investigated the links, but if you find a good one, let us know!):
http://software.informer.com/getfree-face-picture-blur-software/