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block only means they cannot talk to you, it does not stop them from looking at you.
"Users only" made no sense, because Steam accounts are free.
"Friends of Friends" made also no sense because of the volatile friending behavior of people. it was easy to be friend of a friend.
as for OPs suggestion "Private for Blocked Users" ... Steam accounts are free, so that is no hindrance. blocking works only on account-basis, there is no viable method to block people.
so the suggestion is valid, also wuddih doesn't really know why these states were phased out, as valve rarely ever comments on why, it is fair to assume a plausible cause but that does not make it a fact.
one can only say valve, decided they were not needed or they simply were neglected as the client progressed in development.
the blocking of an account may or may not be something one would personally use but that does not mean it is not a good suggestion that blocked users, would see your account with a red label "blocked" or "private".
Friends of friends is a fair suggestion. Every other social client out there does this. It’s also handy for people who are organising matches and want their friend to add you to friends to make life easier.
(just because these functions/code are not being used doesn't make them bad, it just means they are not being used or they have been neglected.)