Happy employees are productive employees. Anyway, if an employee isn't being productive, they'll find a way to waste time, Internet or not. Either structure their pay in such a way that they have incentive to be productive, or kick them out the door. It's a management issue, not a technical one, and technical solutions are merely CYA for incompetent management or hiring.

Furthermore, things like YouTube, Facebook, and Twitter can actually be useful at work. Great as marketing tools, and often can be used to get answers to questions as well (having the "cloud" do research for you, essentially).

BTW, I do IT on a contract/freelance basis. Fortunately, that gives me the luxury of being able to tell management to make back-door love to a close relative if they suggest something rather boneheaded.