TPM has a post about the Obama administration invoking the state secrets privilege in a warrantless wiretapping lawsuit. I don't know enough about the law to really judge it, but this does not look good. Invoking state secrets should be done extremely rarely, if at all. There's a good discussion in the comments about the legality/morality of this. From the perspective of a lawyer in the Department of Justice, it's possible that they are arguing this because they feel that there needs to be someone arguing for this perspective. The logic would be that whether or not the state secrets privilege applies is something that should be decided by the judge, but that the judge won't make a decision on that issue unless someone argues for it. So they have to argue for it, so that it's decided.
On the other hand, one would think that the Administration would actually believe that the state secrets privilege should be invoked, which I would tend to disagree with it. I'm not taking a strong position because it's a complicated enough issue that I would have to really dive into the nitty-gritty details to feel comfortable passing judgment. My inclination is to disagree with Obama (which is almost a relief), but I don't know enough to actually do that.
This bears further watching. It's also possible that the Obama administration wants other people to carry forward the argument that the state secrets privilege should be constrained. That would require legislative action. There is no way that the Obama administration could propose that; they would be crucified by the right. Obama can do many things to enhance transparency and accountability in government, but each move has to be carefully considered. The few conservatives left with any credibility would bitch and moan about weakening the "power of the presidency" if Obama advocated specifically hampering the ability of the president to invoke the right to secrecy. That's a Cheney argument, so it has little credibility, if any, but we don't want to fuel those flames any more.
But if liberals and leftists took this up as a cause, that would be a different story. Of course, it already is a cause, but it's a cause without a specific focus. It would be difficult to pass legislation restricting the state secrets privilege, but it might be possible. That would also give it vastly more power and credibility than if it came from Obama or his administration. And, of course, it's great for liberals to be arguing about it.
An unsettled issue, at best. I will be keeping an eye on it.