What? Surely nobody is spending huge amounts of money on spy satellites just to watch the general public? I think you could be surprised just what uses these things are put to.
For a start, these satellites are far more powerful than you might think. Certainly we've had photographic satellites for decades, modern ones have incredibly powerful lenses which can take pictures of almost anything, anywhere. These pictures are digitally scanned and transmitted back down to earth.
According to the book 'UK Eyes Alpha' by Mark Urban (ISBN 0-571-19068-5), the US had, in 1985, photographic satellites with a resolution of only 10cm (4 inches). That is, the final image makes any object larger than 10cm clearly recognisable. Consider what computer technology was like in 1985... what are they using 13 years later?
I don't see any real reason, bandwidth limitations aside, why a video link from a satellite would be unreasonable. After all, we've had pictures beamed back from the moon and from orbiting spacecraft on numerous occasions. I really don't think this would be a problem, given enough money. The popular media depicts live video links from satellites in quite a number of movies recently, but I can't say that I know these exist for a fact - if anyone does, please contact me by email.
These satellites can be positioned anywhere above the planet without really alerting anyones attention to their presence. They just sit there and watch everything that passes below them.
Of course they do have 'legitimate' uses. They are used by the military to spy on foreign governments and armies - take the Gulf War (and the recent operation Desert Fox) for example. Spy satellites were used to great effect during the campaign, the US positioning many of it's satellites on orbits over the region.
But what of the darker side? What do they not want you to know? How about the fact that a spy satellite photograph can be used to tell what newspaper you're holding as you walk down the street? It takes incredible resolution to be able to tell something like that. So, from that, we can assume that the images beamed down to earth from these satellites can be used to tell pretty much anything at all about us. What if one was watching your front door right now, just waiting for you to leave your home or office? You wouldn't know anything about it.