The friends list is the key to many SL users. This is how they keep in contact with everyone (well duh!). Many people (such as myself) has many friends from different areas such as buisness contacts, friends, etc.
Now personally (and im sure i speak for many other residents) the big friends list gets confusing, and you start to forget who is who.
So the ability to be able to sort the friends list into custom groups is a great idea!