The Problem of Separatism

I go to a very conservative fundamentalist (southern) school. While I have grown-up in a Christian home, went to a Christian school, and attend a non-denominational church, it is nowhere near the level of conservatism as my college. 

Growing up in a Christian environment an idea heavily stressed was that of picking good friends. This has always been logical and obvious to me. Your very closest friends should be a group of people who are morally upstanding (don't read perfect), kind, loving, edifying, etc. This is something that my parents, teachers (in high school), youth-group leaders, and Pastors have taught. I've grown-up with an amazing group of close friends that have encouraged me and edified me spiritually, mentally, and emotionally. 

One thing that was not taught to me was the idea of separatism. When I went off to college, this message of choosing good friends was constantly brought-up. Something else that was taught was the idea of separatism--which, save evangelizing, is separating yourself completely from anybody that is "worldly." This idea to me was, and is, so antithetical to the message of the gospel. How can we, as followers of Christ, completely separate ourselves from lost people--people that need God desperately--when Christ Himself went and ate with sinners?

Today, in a Bible-conference service at my school the speaker took words in Psalm 1, which states "Blessed is the man who walks not in the counsel of the wicked, nor stands in the way of sinners, nor sits in the seat of scoffers" and twisted them to fit his idea of separatism. He completely disregarded the fact that this first verse warns against "walking in the counsel of the wicked" rather than separating completely from the wicked. I don't believe that you can take this verse and completely write-off relationships with non-believers.

Sure, as Christians, there are certain things we are not to be a part of, but walking in the counsel of a non-believer is completely different than being a friend to someone who is not a believer. I believe we are to take Christ's example of befriending non-believers, but we obviously would not take their advice on important matters. Rather, we walk in the counsel of the godly.

A friend and I discussed this idea several months ago and she shared with me her disgust with this idea of separation. She works in the fast-food industry alongside Believers and non-Believers, and she is friends with a majority of them. Often times, she will choose to participate in certain activities with these non-believer friends--such as going out to eat or shopping--but she uses discernment and chooses not to be in certain situations with them that would damage her testimony. She would never separate herself completely from these friends though solely because they're not Believers.

So while there is to be some level of separation (perhaps in certain activities/situations) with these friends, as Christians, I don't believe in separating ourselves from these people completely. We are to use discernment in these cases and love on these friends like Christ loves on us. 

If we completely separate ourselves from non-believers, how is that a good testimony?