Yeah, same story here - I am just about on month 5 with finasteride, and my hair is thinner than ever. Even thinner on the sides and back, but definately the front is much thinner. I am using minoxidil on my hairline, and that is helping, but is not a perfect fix - I'd say it added about 25% density. But that area was thin anyway, so its still pretty thin. Just less thin.
Personally, I am sticking with finasteride for at least a year before I quit (Unless I develop bad sides.) I doubt that finasteride would cause long-term permanent damage to hair.
Its possible that guys like us would simply loose hair faster if we weren't on it. Its also good to keep in mind that by taking finasteride, you are messing with you body's hormones, and this will effect not just the scalp. I have heard others speculate that since finasteride drops serum DHT levels throught the body (and may also slightly raise Testosterone), this has a biochemical "shock" effect that may induce cases of Telogen Effluvium. Telogen Effluvium is caused sometimes by other medications - some people may react to finasteride in the same way (irony at its best). There is no proof of this though - its just a theory. If it is true, then the loss is temporary, and would come back in a few months to a year as the body adjusts to having new hormone levels. But there are enough reported cases of "finasteride sheds" and others in the forum that claim their hair is much worse after starting finasteride to make me wonder if this theory may be true. Especially as I have heard more than one person claim they too are losing from the back and sides as well.
I also wonder if diffuse thinners like us simply have a very high percentage of hairs that move into the resting phase for longer and longer. Its my understanding that finasteride simply protects the hair shaft from the effects of DHT (ie - shrinking of the follicule) but that doesn't mean that the hairs will also grow. Thus, our hair follicules may be protected still, but remain in the resting phase for long periods of time after completion of the growing phase. finasteride won't necessarily push them out of the resting phase - resting phase may remain for a longer extended length of time. We may really need something like minoxidil to push them into growing.
Anyway, 'nuff said. I personally am sticking with finasteride - whatever happens, at least I tried to save my hair. I would feel worse quitting now, and always wonder "what if". Hope this helps.