The data mining operations that the report describes include Knowledge Discovery and Dissemination (KDD), Tangram, and Video Analysis and Content Extraction. KDD is takes information from different data sources to look for patterns. Although World of Warcraft and Second Life have very little in common, KDD allows analysis of similarities in suspicious behavior and activities in the game. VACE is also a tool for recognizing patterns in video content. Tangram is an evaluation system for known and new terrorist activities. The project will begin with a small effort, and if it proves fruitful may be expanded to a much larger scale.
Skinwalker of Windrunner started a thread on spying for terrorists
on the official forums.
He believes that this is an attempt to take away civil rights.
Most of the responses in that thread have been either been echoing concerns about freedom or lighthearted jests.
Aside from faction tensions, I haven't seen any evidence of extremist presence on WoW
To date, there has been no official word from Blizzard on this project