Carrier IQ

Recently it has been discovered by a developer named Trevor Eckhart that many Android phones as well as potentially IOS5 have what is known as a “rootkit”, a piece of software integrated into the core of the phones which is unable to be stopped, and is capable of logging every keystroke, text message, and internet search you perform on your phone.
This software has been bundled on thousands of phones, and phone carriers have the potential of viewing this information for “diagnostic purposes”. This sort of logging is potentially a violation of federal wiretap laws, as there is no disclosure, no privacy policy, nor any way to opt out of this information collection.

According to the EFF, CIQ responded to the published findings with a baseless cease-and-desist letter as noted:
https://www.eff.org/deeplinks/2011/11/carrieriq-censor-research-baseless-legal-threat
…and was retracted just days later:
https://www.eff.org/deeplinks/2011/11/carrier-iq-drops-empty-legal-threat-apologizes-security-researcher

For a video detailing the information being logged:

http://www.wired.com/threatlevel/2011/11/secret-software-logging-video/

General Summary
http://www.extremetech.com/computing/107427-carrier-iq-which-phones-are-infected-and-how-to-remove-it

How to test for it
https://market.android.com/details?id=com.lookout.carrieriqdetector
http://www.theverge.com/mobile/2011/12/1/2602528/how-to-test-your-android-device-for-carrier-iq-rootkit

Direct link to download the diagnostic software
http://forum.xda-developers.com/showpost.php?p=17612559&postcount=110

After you’ve downloaded, I suggest you purchase the pro key and support the developer who made this discovery.
https://market.android.com/details?id=com.treve.loggingkey&feature=search_result#?t=W251bGwsMSwyLDEsImNvbS50cmV2ZS5sb2dnaW5na2V5Il0.