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Spyware
What is Spyware? Spyware are files that are installed onto our computers when we install a seemingly harmless program (Gozilla! And Kazaa amongst others), these files are installed in the background without our knowledge or permission, these files then unknowingly send information about our system and internet usage to whomever, realistically they can send any information, to whomever it wishes.

Some spyware has actually been reported to have the ability to download and install any program or files onto your system and/or copy files from your system without your knowledge.

What about my firewall? Spyware passes the firewall with the permission of the program it was installed with, for example if you install Kazaa Media Desktop, which installs Cydoor spyware onto your system, then Cydoor uses Kazaa's internet permission to send info/date to its server, all this is done secretly in the background.
What is spyware used for? Spyware was first invented for advertising and research; it was like an automated survey. But these days it is exploited by hackers and others alike, to do what? We may never know, it could steel passwords and private files or basically anything it was programmed to do.
How do I get rid of this intrusive spyware? Ad-Aware is my personal favourite, the basic version is totally free, but I would advise purchasing Ad-Aware Plus only because it comes with a nice little program called Ad-Watch which constantly monitors you system in the background for any new spyware that is installed. Also make sure you download free a charge RefUpdate, this is the program that will keep Ad-Aware up-to-date with new spyware as it comes out.
Links on the subject
Ad-Aware FAQ information about Ad-Aware and Spyware.
Optout information about spyware from Gibson Research Corporation
Anti-Spy, Learn about internet security.