It occurs to me that you could get a lot of the lost privacy back by blurring the screen enough to make text illegible. As long as the other person can still recognize known procrastination activities in their blurred form (which should be pretty easy - sites have distinctive color schemes), it still works, but there's less risk of accidentally revealing a private conversation or other secret.

I wouldn't worry too much about your software being useful for spying on people without their consent. The standard countermeasure is to put a notice in a little window or on the system tray while it's active. People who want to spy on others' computers already have lots of software to choose from, both repurposed and purpose-built, so you'd have to go out of your way adding concealment features to make it competitive for that purpose. (That said, do be conscious of security: require a password to view, and use a vetted third party library to encrypt the login and the images.)