Yes, it is no surprise, employers are looking at your keg-stand photos. But before you take that down, it could be a good thing. You never know. On second thought ... you better take down that photo of you streaking through campus ... no one wants to see that.
My unscientific study of 52 hiring managers showed that 49 of them are looking at social media profiles of candidates they are interviewing. Their biggest red flag they reported? "The candidate is nice but he doesn't have any social networking profiles." For certain jobs, that's equivalent to putting a big "I'm anti-social" sign on your back ... which might be fine if you are stuck in the back of an accounts receivables department but not if you are expected to be creative.
CASE STUDY: DID NOT GET THE JOB
One of my friends was interviewing babysitters and finally found a great law student to babysit his kids on the weekends. After hiring her but before her first day, my friend happened to check out the babysitter's MySpace page where she made references to heavy drug use. In this case (babysitting) drug use was not a plus for the role. She never got her chance to try.
CASE STUDY: GOT THE JOB
Social networks can also help candidates. One hiring manager was hiring an office manager and liked one of the candidates but she was very shy in the interview. An office manager (someone on the front lines of your company) must be friendly and outgoing. But after seeing the candidate's social networking profiles with her having fun with many friends, she was offered the job.