campus network admins

[cypher at tediouspath.com]

I recently violated the network user agreement (they packet-sniffed and
got the username/password for my FTP server and didn't like what I was
sharing with myself) and was informed by the admin that I am now 'under
observation' and that they "hope I don't like privacy". Considering
this admin was an NSA employee, I tend to take that threat a little
seriously. Two questions:

1) I'm assuming they can legally look at anything that comes in or out
of my computer, but is that the case? Can they look at my computer
itself, or take me off the network for the private contents of my
computer?

2) Is there some sort of service I can use to have everything I do on the
network encrypted, such as a tunneling service to the internet?

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