i have some vague memory of doing this but can't remember particulars
had to create a group privoxy as well i remember that
perhaps post exact error output from the install will help.
i certainly remember being confused by it.
when i look at the installed files they are owned by root with group privoxy
executable is root.root
all the directories seem to be root.root
might be i cheated and installed as root ?
but when i run it i start it as root but run it with --user privoxy.privoxy
/usr/local/sbin/privoxy --user privoxy.privoxy --pidfile /var/run/privoxy.pid /usr/local/etc/privoxy/config
not sure if there are any negative security things to that or not