There are lots of comments on this Guardian article, including this one from martinusher:

I had a quick look at this system today on a technical website and it appears that the system effectively routes all your web traffic through a proxy server which records your browsing habits (and, while its about it, obscures your browsing habits from anyone else downstream from it). This is why they require the cooperation of your ISP – they have to intercept your network traffic before it passes onto the Internet proper. (Typically the link to an ISP is a point to point link just like a dial-up even if you’re using broadband.) This has implications far beyond just figuring out what you’re doing so they can feed you ‘relevant’ advertisements; its nothing less than packet by packet control of everything you do.

This may sound infeasible because of the volume of traffic but a quick look at the equipment suppliers will show that its not — the industry is quite capable of examining and categorizing everything you do CIA style but won’t at the moment because its not cost-effective. The ads will give it the motivation to install the kit, the other uses will follow.

Its also got the potential to cut off the air supply to sites like Google.

– You might call it "resistance": 95% say they’ll opt out of ISP’s data-sharing deal

See also:

• Bad phorm
• On Techdirt: Phorm.com are an (ex?) spyware firm
• More Phorm horrors

Update: seems I was a little late to the party (I only noticed it when it made it to The Guardian). The Register’s been rather prolific in chronicling the various angles on this, including the the possibility that BT lied as to its involvement and that the traffic snooping actually violates several laws:

• ISP data deal with former ‘spyware’ boss triggers privacy fears
• Data pimping: surveillance expert raises illegal wiretap worries
• BT pimped customer web data to advertisers last summer
• How Phorm plans to tap your internet connection
• The Phorm files

Veerle Pieters has a great quote from a web advertiser on her blog:

By using a popup blocker, you are essentially stealing their work. You’re nothing more than a common thief.

Nice to know that particular advertiser cares so much for their users.

But this is no reason to be smug. The recent virus/worm attacks have munted the internet for all users, of whatever platform, because Windows is so insecure. As Mike Wendland (“Mac Mike”) says:

So this Mac user is indeed affected, inconvenienced and bothered. I’m unable to access my work e-mail because of this. Too many Mac elitists act secretly delighted that Windows machines are so vulnerable. It’s nothing to gloat about. — http://ej.typepad.com/macmike/2003/08/macs_are_affect.html

If you’re going to insist on using Windows, even when Linux is just as easy to use, at least get virus protection and a personal firewall!

BBC NEWS | Technology | New computer virus hits inboxes