If the server just keeps on logging until the reporter cancels or logs out, then people will forget, meaning gigabytes of useless logs. That's why there must be a timeout. A command for retroactively cancelling one's own report (not reports on the target in general, as others obviously may have had otrher reasons to report them) sounds viable as well, and it wouldn't have to be used or known.
Anyway, a privacy statement on the website is preferrable to putting it (solely?) in the EULA, since the EULA is invalid in many countries.
However, let me state some things that I mayh notr have made clear yet:
The issue is not that I think that GMs are, by default, malicious voyeurs. In fact, I view the GM team as quite integer. Yet, there have been and will always be cases where that isn't the case. These will be individual cases, not general ones. Still, this should be adressed and it's effect reduced to a minimum, not least in self-interest of the GM team for maintaining credibility.
The filter would (or should) not apply to any public channels. In fact, it should aply solely to /tells. I think that is the intent, but seems to have not come accross correctly.
Logs aren't permanently stored, and instead removed when dealt with.
The combination of a privacy statement ("We reserve the right to intercept traffic and read it to maintain a good environment and proper operation, but won't do so without reason") and a logging feature of the sort described (with /tell filter and public logging) seems as a solution that is fair to everyone. It would indeed be stupid to try to restrict the devs / GM's access to things they reasonably need, like look at core dumps and /report logs. It would, however, also not be wise to needlessly reduce player "rights".
In light of this, it is my opinion that insisting on laws of some form or another is very counterproductive, since it not only creates unnecessary tension complicating things, but also is quite muddy since it is not clear what law could / should possibly apply. There is already way too much suing in the world, most of which could have been avoided by use of common sense on both sides.
Thus, even though under law it would likely be possible to construct an EULA/privacy statement combination that takes any right to privacy and intimacy from the players, doing so would be a mistake. Likewise, the opposite, forcing the PS team to ask for each and every line of communication, would be a mistake.
The middle ground everyone should be (and AFAICS is) aiming for is to log and look at only what is reasonably necessary, and it seems that throughout this (comparatively civilised discussion considering the topic and length) a sort of consensus about that has already been reached anyway, and that is:
Log the public chat of either reporter or reported (or both in light of the selective mute bug, which at least wasn't solved before laanx was taken down).
Also log /tells exchanged between these parties, via the filter.
Put that in the privacy statement, along with a line stating that while best efforts are made, it cannot be guaranteed that other things get reviewed accidently.
It would allow the team to do what is necessary, and be reasonable towards the players. Also, the team will not have to worra ybout possible abusers within their own ranks, not players in that case. What isn't there can't be abused, so it is, in a way, also a protection for the GMs.
It is my impression that this discussion has been far from useless, as it has given rise to issues that would likely have caused serious grief in the long run.