I'm sitting here trying to decide between Net Nanny and Cybersitter. No way my kids are going to be fooling around chatting with anyone on websites. We have a phone here in the kitchen that they can continue to use, and a computer in the den that they can use. No private computers, t.v.s or phones in their rooms. They want that, they'll have to wait until they move out of our house.
I don't believe in giving them absolutely no privacy. But they can communicate with others in semi-privacy, knowing one of our family members could walk into the room at any time. It certainly won't hurt 'em -- I grew up in a household like that (the norm for the time).
Rather than use something that "Blocks" sites like netnanny, I would recommend using a "scripting" or "logging" program. We use linux at the house, so it is a geek thing (I had to write the script myself), but there are lots of windoze thingies out there that record keystrokes. I let my girls know that they could surf anonymously, but if there was any evidence of talking inappropriately or hanging out in rooms where that went on, then we would have to re-think the privileges. I pulled out a session in a chat room, printed it off, and told them both when it occurred (just to show them how it worked). We had no real problems with the internet, just knowing that it is not "private."