In the name of “making your user experience better”, spyware called Carrier IQ is installed on most modern Android phones and everything you do is being logged.  The spyware even circumvents web encryption and grabs everything—including your passwords and Google queries.

This spyware doesn’t just log anonymous generic data.
It grabs everything.

Technical details on how Carrier-IQ work are available here but an easier to understand explanation from Information Week is here.

What can you do to avoid it?  Unfortunately, not much.  The hidden spyware is always running, and there’s no option in any of the menus to deactivate it.  Unless you’re a grade-A black-belt hacker, you’re out of luck.

As of December 3rd, 2011, Carrier IQ, Apple, AT&T, and Sprint are all defendants in lawsuits.

You may or may not be safe if you’re using a Verizon or T-Mobile Android phone, you don’t live in the US or you’re a hacker genius and have rooted and removed the Carier-IQ spyware.  My advice is to install and run the VooDoo Carrier IQ Detector software on your Android to determine if it can detect this spyware.  Instructions on how to perform this detection are here.