EDIT 6/18/2010: You should be looking for a program called PeerBlock, not PeerGuardian. See this post for more details.
I learned about this program from an acquaintance at work during a discussion about Bittorrent this week. I have the program, which is open source freeware, downloaded and installed as I type this.
What is it? From their site:
PeerGuardian 2 is Phoenix Labs’ premier IP blocker for Windows. PeerGuardian 2 integrates support for multiple lists, list editing, automatic updates, and blocking all of IPv4 (TCP, UDP, ICMP, etc), making it the safest and easiest way to protect your privacy on P2P.
The program runs in the background, and takes little resources. It will act as a firewall, but, as it’s creators mention in the FAQ page, should not be treated as a replacement for traditional security software. PeerGuardian, as the name suggests, is designed primarily to protect your privacy on file sharing P2P networks, such as the almighty BitTorrent protocol.
While installing, you have the simple choices to block items based on “lists”. Some examples include P2P (which is checked by default), adware, malware, and government. These each then refer to a list created and maintained by the programs creators to give PeerGuardian a Black/White list.
You can configure PeerGuardian to check for automatic updates for these lists as well as the software itself daily, weekly, or whenever you feel like it really. You can also create your own custom lists. The software also blocks http/https by default. This can be disabled, but I have yet to notice it interfere with any of my standard surfing.
I have just started using the software but it seems to be a really good thing to install, especially on a computer used for less than legal activities. But there are plenty of legitimate uses for this software, and it is not by itself illegal. It looks, however, to only be available for Windows platforms.