…and it’s not just Google. IE8 also has features that are misleading, in terms of privacy.
I’ll talk about Google first. What’s going on: text you type in the search or URL field are sent to Google, even if you don’t press Send. In other words, if you type in the word “breasts”, and then later decide that you should not be searching on that at work (or wherever you are), it’ll be sent to Google anyway. It’s practically a key logger.
Now back to IE8. This new version of the browser has an InPrivate browsing mode that supposedly does not record where you’ve been. However, according to forensic experts, the feature doesn’t work and it’s still trivially easy to see what sites a user has visited even in InPrivate mode.