A dongle, physically like a surge protecter, with two plugs: one plug is for the ethernet cable to the wall, the other to your computer. Or you can set it up with one plug going to your cable modem and the other going to your wireless router.
The dongle watches for botnet-like activity going across it; that is, it is checking if your computer is part of a botnet. For example, it sees if you are sending or posting spam, or are rapidly probing many other IP addresses for a vulnerability. Or the dongle calls home (be careful to avoid a DDOS attack -- use P2P) to see if your IP address is on any known botnet lists.
On detecting "bad" traffic, it notifies you only, perhaps by sounding an alarm, so there are no privacy problem, apart from the optional "calling home" feature.
Dongles should be government subsidized, and distributed by your ISP, because you using one causes a beneficial externality that benefits everyone else.
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