This isn't a case of the school attempting to spy on the students outside of school, it's a case of, at worst, the misapplication of a useful technology by an individual.
It should also be noted that the school district has completely removed this software from the computers, and are looking to prevent anything of this nature from happening again.
Sounds reasonable. Still pretty silly to begin with, but at least they're trying to satisfy the situation.
It could be worse, such as some problems with my own school (college, but still a pretty close example):
Well, to get into a private school you have to agree to their code of conduct among various other things to be allowed in. Once you agree to this, there is literally nothing you can do.
At least when you go to a private school, you know what you're getting into.
When I moved in to student housing in 2007, all the rules and regulations of the building were listed on numerous pages of fine print, and and you had to initial every point before signing. Most were reasonable: no alcohol (you could move to the 21+ housing if you wanted that), no drugs, no weapons, etc.
Of course, it wound up not mattering as I found people with this stuff on numerous occasions, and rarely did anyone running the building do anything about it. A friend of mine even reported a room that was throwing a loud party (of course, with alcohol and drugs), and the RA that was sent up knocked on the door and joined in instead of taking care of the problem!
The building even has hired security, but they're not allowed to actually do anything (even if they see the evidence).
So, with all this nonsense going on, how do they respond to fix the problems? Why, by adding more rules without informing anyone, of course! That's right, they add more rules, limiting even more what you're allowed to do, a curfew on certain entrances forcing you to go round about even if the other entrance (which HAS security guards) is closer to your room (and this building is huge).
To get around being 'legal' they make you sign another paper that looks similar to the lease, and they do this every single quarter (despite the fact the lease itself lasts for three quarters). The last couple of quarters, a friend of mine had a bunch of trouble dealing with them over mold in his room. The head of housing threatened him with slander, despite him having over fifty photographs and numerous people that could vouch for this happening.
The next few months after this, a clause was added onto the psuedo-lease stating "if there's mold in your room, it's not our problem."
The next few months after we finally moved out of that stain of an apartment, ANOTHER clause was added essentially stating "if ANYTHING happens, it's not our fault, even if it happened because of us."
Oh, and to keep with the "invasion of privacy" issue, RAs were sent about once a month to check the state of students rooms (they would leave little notes saying they would fine you if your room didn't meet "standards," though half the time I really had to question their judgment). They had master keys, and some of the RAs were known to have stolen stuff from people's rooms. This wasn't the schools fault in particular, but you'd think after enough complaints they'd do something about it.
This private school in question at least seems to be trying.