Social networks for reference checks

I am often asked whether potential employers are legally able to use Facebook or other social networking sites to do background checks on candidates. A recent "update" email from LinkedIn contained the following blurb at the bottom:

"DID YOU KNOW you can conduct a more credible and powerful
reference check using LinkedIn? Enter the company name and years of employment
or the prospective employee to find their colleagues that are also in your
network. This provides you with a more balanced set of feedback to evaluate that
new hire."

This is a different model: rather than scoping the info a candidate may have on his or her profile, you can find people who may have something to say about a candidate. Interesting and potentially useful. But make sure you have consent from the applicant for broad-ranging reference checks.