The friends list on Livejournal is its worst feature.
The friends list is really a confustion of three features. Firstly it is a subscription list, allowing you to read summaries of posts from your entire subscription list. Secondly, it is an access-control list, on which you set the defaults for who may read your protected posts. Finally, it's a friends list on which you list names of people you like.
Anyone can tell that while these three lists overlap significantly, they're not by any stretch of the imagination the same thing. Half the population of LJ, as far as I can tell, has run into problems because the friends list is overloaded with meaning. One of the most common is (I've heard about this but not verified it personally) the fact that if you add a community to your friends list (for the purpose of subscribing to the community for your friends page), people in that community can see your friends-only posts. (edit: This bug is now fixed)
The other problem with friends groups is the friends page itself. The default layout for the friends page is geared towards occasional, medium-length posts. People who make frequent, short postings are annoying, because they clutter the page. People who dare to make long posts without using lj-cut make the friends page too long.
Friend groups are a good solution. You can define your friends list to be a superset of all three meanings, and use your friends groups to generate friends pages and access control your posts. Since your public friends list contains all these names, you don't offend people who can't see which groups they may be in.
I take a different tack. To solve the access control problem, I don't make friends-only posts. There's one post in my entire history that's friends-only, I made it that way because someone from work had found my wiki, and the post was about work. I figure, if I have something private that I want my friends to know, then it's important enough to tell them personally, rather than posting it on a web-page that they may or may not read.
(Edit: This is no longer true. I succumbed.) To solve the friends-page problem, I don't read my friends page. Go click on my friends page and you'll see it's gibberish. I have a Ruby script that checks if there are any new posts on my friends list every minute or so, and if there is one, it parses the page and I get a message saying who's posted, what the subject is, and the first fifty characters of the content. If I want to read the post, I go to the person's livejournal homepage.
I have a neat bookmark in Mozilla. I type "lj username" in the location bar, and it takes me to "username"'s livejournal. More often, I use lynx.
This works well. Firstly, you see peoples posts in context, without all the other voices around them clamouring for attention. Secondly, many people have page layouts that reflect their personality, so you get the added bonus of reading their journal entries in the setting they were written for. And since I have user-by-user control of whose entries I read and when, long posts or short posts don't faze me. For people who make frequent, short posts, I wait until they've posted six or seven times, and read everything in one group. Same goes for people who are on my friends list, but I don't feel like reading everything they write.
