Ok, I'm giving away a parental secret here... and hoping my kids don't know my screen name. Yikes!
Yes they can read every single thing you send. They can see every single thing you receive and every site you go to.
I personally have a "ghost software" on our computers. It doesn't show in the registry, McAffee, AdAware and EAV Anti virus don't pick it up. I just type a secret password when the screen is blank and everything that has been typed on the keyboard starts scrolling up the screen. In there I find the passwords and I go to the sites and read what is coming in.
With teen abductions, teen STD's, and prevalent drug use of extremely harmful drugs out there, I see this as a protection of the children God has entrusted to me.
While we're at it, you should know that they can get a monthly printout of your text messages if you have Verizon. I don't know about other carriers.
Knowing things my boys think I don't has allowed me to prepare and make sure there is safety or a way to break it up in a halfway normal way before anyone is harmed without all the screaming and yelling.
Be honest, ask for some freedoms but expect some oversight.