Obviously ISPs have the ability to look at our surfing habits - but it should be prohibited by law, with the usual necessary and reasonable exceptions.

Imagine phone companies cutting off phone service if they got wind of the fact that we were calling a known drug dealer. Like phone companies, the ISP should do no more than blindly connect us to the ip address we 'call.' We do not need a 'friendly' notice that we should stop contacting a certain kind of person. Additionally, ISPs are not competent to decide whether material falls under fair use. ISPs should assume that our access is permissible. If a rights holder wants to file suit or the government wants to prosecute, that's the responsibility of those parties. The ISPs must be afraid of being sued themselves.