Al Zarqawi may have been done in by smart dust. While it's hard to disapprove of this particular application, this is only the beginning of this kind of technology. It will be interesting to see what kind of technological countermeasures appear in the future to allow the retention of privacy. It may be a losing battle.

Faraday cages will be all the rage.
Invest in tin futures.

It seems like it would be very easy to confuse this particular application, by the target making contact with others or by "smart dust" falling from the target and being picked up by others (including animals, a la the tracking device in "Total Recall"). If the story has any merit among that crowd, I'd expect the terrorist leadership to become very affectionate, both towards each other and innocent civilians...lots of vigorous hugging, etc.

A year or two ago I read an interesting essay by the science fiction author David Brin. He essentially proposed an end to the concept of privacy. His basic reasoning, if I recall correctly, was that the situation in the not too distant future would be that if you were rich enough you could essentially find out anything you want to know about somebody else. (He proposed the thought experiment: if there were laws about privacy, do you think they could be evaded by the unscrupulous rich? How about the poor?) He then further reasoned that it would be much more equitable to simply not try to legislate a right to privacy, thus making things a much more level playing field as to who exactly had access to everyone else's business.

A slightly related item might be some "sunshine" proposals for political donations: don't try to regulate people and amounts, just make sure how much gets donated by who is public knowledge.