My son's had his own computer since he was about 4. It's always been fairly locked down -- running Vista Parental Controls right now, with non-admin access of course, and I enable sites selectively for him. There's a lot of junk out there, and even kids' web sites are full of advertising that we can do without.
I like what we can do with the computer in terms of education, and he even enjoys doing that to some extent, but it's still much better when that "automated education" is assisted by me being right there, helping him out, directing him to worthwhile challenges, praising him, etc. Besides, we can learn some things ourselves doing that.
I enforce Internet lockouts sometimes through the router (sometimes scheduled), as well as full computer lockout through the login at times. I lock out some games and folders at times using file system level privileges, and even use a little digital timer for game time limits. It's easier for kids to understand time's up when a beeper's going off than by looking at a clock or by feel.
All this might sound draconian to some, but to be honest, it'd much easier for us to be lax and let the computer be the babysitter, teacher, etc., and hence avoid that responsibility, but it's better for him when we don't.
Here's a recent article on software Parental Controls:
http://news.bbc.co.uk/2/hi/business/7235466.stm