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Actually, it's not a myth, mostly. Unless you actually work in a library.
The other day, I requested a book transfered from another library in the university system to my library. The usual sort of thing. Now, this means that everybody in the circulation area (which for us is the whole library) knows that I want this book. Of course, it was Women, Fire, and Dangerous Things, which looks at classification, and the creation of categories from a cognitive science basis, so it's not very concerning.
The problem is that it came with, for some odd reason, a book on Schizophrenia, also putatively for me. Too bad I didn't ask for it.
While regular patrons have some semblance of confidentiality, in the sense that we'll know the regulars and what they take out, but we would never tell anybody, it's different when it's your coworkers that know what you're reading, for at least some subject areas.