I have directly felt the pain of this site.
I run a small software dev company. We are 6 big. About 1.5 months back, I was struggling to figure our why so much development time was logged, yet deadlines where not reached. I ended up installing tracking software to track machine usage on my developers machines so I could monitor them and determine where the problem lay.
Turns out, one of my guys was a facebook addict. Between facebook and MSN, he would spend 2/3 of his working day messaging and playing, yet log a full days work in his timesheets. I left it for two weeks to gather data so I had sufficient proof. I then approached the person in question, he said "sorry, won't do it again" and I left it at that. Another two weeks goes by, nothing changes, so I check the logs again. *sigh* Still the same habits. Now knows he is monitored, yet carries on.
Needless to say, we got extremely close to losing the client he was coding for. I managed to get us a second chance with the client, and my developer has "resigned".
I am all for letting my staff manage themselves. As long as I see productivity from them, I don't really care how they go about doing it. They all have full open access to the net, gaming capable machines for LAN'ing, LCD screens, etc... When I get taken advantage of though, it is just not on.
This episode did not result in me blocking internet access. I simply replace the staff member (he did get a chance remember). The other guys also go to facebook and play with IM apps, but they are productive and don't let their personal lives influence what they are paid for. As a result, they are left to manage themselves.
It's a tough call. But when an employee is paid to do a job, why should the company have to take the fall for an addiction the employee is unable to control. It hurts, and hurts bad. Maybe not so much for a large corporate, but for a small company it can literally break them. I was there...