Correct/Recommended use of Masquerade in Dominion: Intrigue
From the Intrigue rulebook:


  First you draw 2 cards. Next, each player (all at the same time) chooses a card from his hand and places it face down on the table between him and the player to his left. The player to the left then puts that card into his hand. Cards are passed simultaneously, so you may not look at the card you are receiving until you have chosen a card to pass. ...


I agree this is ambiguous, but I think your original interpretation is correct: the cards are not public and people only know what they passed and what they received. There are three things that support my claim:


The rules do state that the card is placed face down. The very next sentence says the card is put into the hand. I believe that if the intent was for the cards to be revealed that the rules would have explicitly told the players to turn the cards over, or to reveal them.
The simplified description on the card (see picture above), is "Each player passes a card from his hand to the left at once." The phrase "at once" implies that the passing should be done by all players simultaneously and that the only action they should be performing is the passing. That is, no looking at what you're being handed, no turning over what you're handing off so everyone else can see it--period. Pass the card at once.
The card is called Masquerade, which is a party where the guests wear masks to disguise their identities. I think leaving the true identities of what is passed a mystery to the party at large is exactly the spirit of the card's name. The fact that Masquerade is the only way that to disguise how many victory points people actually have I find quite charming and not at all a reason to think the passed cards should be public knowledge (lots of Dominion cards of one-of-a-kind).