In general, I'm hugely opposed to this year's revelations about spying. Capturing our phone records, even just the metadata, if far beyond what the government is given the power to do.
However, I'm not very bothered by this action. It's OK for police to walk around the streets and take note of what they see. And it's OK for police to come engage me in conversations and, if I agree (whether or not I know he's a cop), ask to participate in whatever I'm doing.
If all that is OK in the real world, why would it be a problem for a cop to walk around a virtual world, taking note of what he sees, and engaging with other people.
The only problem is when they're watching something that we believe should be entirely private, or held in confidence between myself and whomever I'm interacting with. Surely if I'm in a virtual public spot in, say, WoW, I can't object to someone observing what I do.