Best Free Employee Monitoring Software?

I have an employee who I believe is spending more time playing online games and downloading songs than he is working. I am running a small LAN (no in-house server as of yet) with 13 computers (mostly running XP) connected to the internet. Is there a way for me to monitor the websites and or P2P activity being accessed from any given machine (other than browser History)? I don’t want to make any false assumptions and would like to show proof of the ammount of “play time” my employees are using. I’m a big fan of great FREE software (ala analogx.com) and I’m sure there’s some great programs out there, but I have no clue where to start looking. I figured someone here at my favorite forum might have some suggestions :wink:
Also, why we’re on topic it would be cool to restrict access TO a select few websites or restrict access FROM certain sites. What about word censoring emails?!

I’m sorry, I know nothing about this stuff so any insight or even a great link or two would be very helpful!
Thanks!