You should work with the human resources department and your company's lawyers to ensure that this policy is enforceable. You should also ensure that the list of prohibited uses is frequently reviewed and easily amendable so that you can react quickly to the PointCasts and Napsters of the future. Of course, monitoring Internet traffic is only part of the puzzle and is best used as a trip wire for intensive monitoring of a problem employee. One false step and you're history. By the time a problem has become serious enough to warrant activity monitoring, the employee should already know that he or she is in deep trouble.
Activity monitors are tools best used with restraint.
For example, I would be very hesitant to install an activity monitor on a machine in a telecommuting worker's home because of the likelihood that other members of your employee's family will use that computer. When in doubt, check with your company's lawyers to make sure you don't run afoul of national or local law. One of the many employee privacy concerns exacerbated by the use of activity monitors is that they present an Orwellian image of the workplace. These utilities send a chilling message to anyone using your systems for nonbusiness purposes, and they declare a lack of truust in your employees. Tools like Enfiltrator Software's Black Box Key Logger and WinWhatWhere's Investigator are best treated as occasionally necessary evils.