AFAIK it's not the ISP who will be monitoring your usage, in this case. All this stems back to the recent government twitchiness over downloading, following pressure from BPI et al. The government have told the UK ISP industry they have a certain amount of time to "sort out their own house" else legislation will be introduced.
In effect, most ISPs are imposing a "three strikes" policy. They will not monitor your usage themselves (they have no legal obligation to as they're 'data conduits'), but if they're contacted by BPI or others they'll issue you a warning.
Basically as most people know, the BPI, RIAA and friends like to monitor public torrent trackers, p2p networks etc and log IP addresses seen sharing copyrighted material. They then take this log (your IP, which material you were sharing etc) and send it to your ISP, asking that they take action.
Previously many ISPs would have ignored this, but now they're under a lot of pressure. There are arguments circulating about civil liberties (the right to a trial etc) as this system automatically assumes guilt based on the say-so of a profit-making organisation looking to crush leaks in income.
So while I'm no fan of VM at the moment (re: Phorm) in this case I'd have to say not guilty. It's not them watching you have to worry about. Of course in the UK it's illegal to share copyright materials (and p2p/torrents upload the data as you're downloading it) which is why serious downloaders prefer Usenet. Encrypted SSL Usenet for me, as I don't want people spying on my legitimate activities in the name of company profits
