I work somewhere that does this. The reason is not to prevent employees from wasting time; it's to prevent someone from unintentionally putting internal data in Google Docs or something like that. The filters are stupid, though, and only cover the very mainstream. Digg and Reddit are blocked, but Slashdot, Hacker News, and Metafilter aren't. Plenty Of Fish is blocked, but OKCupid isn't. Even sillier,
http://voice.google.com/ is blocked (because it's "voice over IP", which it's not) but
http://google.com/voice/, the actual URL, isn't. Etc., etc. It's really stupid, but it's essentially government-mandated.
In exchange for this, though, nobody dictates what technology I use to do my work, I can show up at 2 in the afternoon and nobody cares, and I get a lot of money. (The company I worked at before didn't block any websites, but the work was boring, my manager micro-managed every library decision, and I got almost no money. Trade-offs.)