What privacy issues? Are you concerned someone can read your texts over your shoulder? You'll probably notice when someone's breathing down your neck then, because even with a 5 inch screen, the screen is still small enough to require the phone to still be in an arm's distance from your face to read properly. For everything else like photos and videos, you are aware that you've already shared all of your life with Google, Facebook, etc anyway?
For me, one of the downsides of the Xperia S is how grey all the colours are when you look at it if it's lying down on a table. You can't properly show photos to other people or you need to hand them your phone.
Saying that bad viewing angles are good for privacy is just one of those excuses to avoid criticizing Sony. Sony never made those viewing angles so bad by design, it's not a feature, so the viewing angles should just be as good as possible. If it were a feature, it should be optional because not all of us wear tinfoil hats. If you want bad viewing angles because you're actually concerned about your privacy (and you don't want to tell that creep breathing in your neck to shove off) there are filters you can apply as a screen protector or a case to get even worse viewing angles. I know that Siemens employees need to put a similar filter on their laptops if they're using it in public to avoid leaking company secrets.
About the Xperia Z1/Z2, they're too big for me. I'm considering the Z1 compact but after 2 years of Sony, about half of which with AOSP based ROMs, I've decided I don't like OEM skins and the limitations they pose. So next phone will probably be a Nexus (it's a bit smaller but only just though..) or a Motorola if they release the successor of the Moto X in Belgium at all. I would be tempted to get an Xperia Z1 compact if there were a Google Play Edition.
Poor viewing angles are indeed a sign of poor quality. But believe me when I tell you that that's the only gripe I have with the Xperia Z1. The issue is similar to that of the Xperia S (try rotating it on a table 360 degrees, you'll see a white haze over the display when you're turning the device until it's either horizontal or vertical again). If XperiaBlog is to be believed, the Z1 Compact has a much better displays, where viewing angles aren't an issue anymore. I'd say the choice whether you should get a Sony device or a Nexus is a choice of camera. If you don't mind shooting average pictures, you might want to go for the Nexus device. If you want to get the most out of it, get a Sony. The Z1 is capable of taking amazing shots (as proven by me riiiiight >here<) and the Z1 Compact most likely won't be much else.
Sony's software, UI and skin and all that is a matter of taste, I guess. I actually like it now, maybe even more than AOSP. I did prefer the Nexus looks on my Xperia S though. But Sony's software has long been improved (I wish they had given some of the new software to the older devices).