When I apply the default privacy setting to all the sites in our WP network, the setting is not applied at all, i.e. no change in the privacy setting of the individual blogs.
I've tried all settings, but applying the default doesn't seem to have any effect. I've noticed that this IS the case when I have manually changed the privacy setting of a blog prior to applying the default from network dashboard.
I hope you can reproduce this behaviour and that you can fix this?