I would recommend using opendns.com as your dns server. It will block a lot of sites for you and also keep a record of all sites whose name has been looked up.

Last year I spent sometime on a double decker bus kitted out as mobile youth/kids club. It had internet access, fortunately with all screens pointing to the centre of the bus so you could easily monitor them. The computers had Net Nanny which did a good job of stopping kids accidentally visiting explicit sites. We had a pair of 8 year old girls who loudly declared they were trying to access a known explicit site and where actually trying. Net Nanny kept them at bay, but it wouldn't have beaten your average 12 year old kitted out with all the things he has learn't from his mates at school.

I would use opendns and Net Nanny or similar in combination and check the logs from opendns. As was said before, keeping the computers under parental supervision is by far the best protection.

I am sure we weren't as naive as today's kids. They seem to be willing to accept anything told to them on the screen and will give pretty much any personal information asked for without a blink of an eye. Despite warnings from all directions. You can't keep them off chat and social networking but that is the biggest danger, monitoring this is vital. A lot of the interaction is very healthy but when it goes wrong it is very dangerous.

Families that make use of computers a communal thing seem to fair best, talking about it, playing and interacting.