It's pretty damaged as a brand, so that's a tough call. The one area where they seemed to maintain some strength even as they were fading, was in the music area, so I'd probably try to do something there. Maybe drop everything else and focus on being the premier place for artists to interact with fans, sell music online, etc. If possible, maybe partner with the major labels for rights to sell digital tracks of mainstream artists, and then go heavy on music / artist discovery / recommendations, etc.
Shut it down for a week. Reopen it as the indie iTunes (audio, video, games, whatever) Also, completely change the look, go for something far more uniform. I'm not against, say, user backgrounds and changing colors, but no animated gifs, no auto-start material, no changing layout.
You get basic functionality (private messages, mimicking "Wall" functionality calling it a "space," commenting on items/posts,) and can follow friends and artists. The space should show your friend's purchases (unless you check a "do not broadcast this purchase" box.) You should also be able to do public recommendations that show on all of your friend's spaces. "Jeff Warren recommends DJ Z-Trip's song "Kiss (Remix ft. Murs)!"
Every item you look at should include general ratings, friends ratings, and a list of friends (and artists you follow) who've suggested it.
As an artist, you can put up music, video, HQ images. They should undergo a cursory inspection (I'm sure there's software to match audio against known audio,) and then be uploaded to sell.
Bonus points if you want to do an "online library" akin to Amazon's Cloud Player. I'd also let you regulate people's ability to see your library (everyone, friends, no-on) on a per-item basis. Hide those guilty pleasure!
Hire back Owen Van Natta and his team (including Eston Bond) and implement their new design in a modern programming framework.
Emphasize what Facebook lacks:
- The ability to compartmentalize your networks according to personas rather than "lists" (i.e., different profile photos for different groups of people, etc)
- Have the service be an arbitrator of sorts between oauth providers
I think what Myspace needs most is a well-defined (and worthwhile) vision that its employees will want to work for, and that will also produce "what people want" (i.e. will make users happy).
I wouldn't do anything to it until I was sure I had that figured out.
