Alan sez, "TechCrunch and others are reporting that a program called "Carrier IQ" that comes pre-installed on Sprint phones has some pretty amazing spyware capabilities, right down to keylogging everything you do on the phone."
Note the careful use of the words "record," "provide," "inspect," and "report." It's obvious from this video that the application has access to the information in question, and whether it records, provides, inspects, or reports it is simply a setting they can choose. The purposes for which CIQ says their software is installed — identifying trending problems in the fleet, for instance — don't seem to me to require the level of access the software has granted itself. Add this to the fact that users are not informed at any step of the fact that their information is passing through "quality assurance" layer (sometimes before the user layer itself is aware of it), and their indignant denial begins to ring hollow.
Furthermore, as many developers have pointed out, the mere presence of the software is detrimental. Removing the software has reportedly improved performance and battery life. Furthermore, secure handshake information over wifi is passed through the software unencrypted, something that has little to do with carrier quality assurance. And if that information is cached even temporarily, that's a security risk.
CarrierIQ, makers of the rootkit/spyware, threatened legal action against Trevor Eckhart, the researcher who reported on this, and backed down after EFF took up his case.