My DD has a myspace account, I let her get one when we moved away from her friends. I have her password and I am one of her "friends" and monitor it very closely. I also have access to her email. I have made it clear to her that I can and do check the history on the computer and can see everything she does on there. I have also drilled internet safety into all of my kids (no real names, addresses, phone numbers, etc) and they remind them at school as well.
Besides that, she likes webkinz, wizard 101, toontown, virtual family kingdom, nick, addictinggames.com and disney.
She's only allowed to play video games two days a week and occassionally on weekends, that includes the computer, wii, and ps2, she has to choose one.
ETA: I totally agree with having the computer in a common area, too, where you can see what's going on. I don't stand over DD's shoulder, but I do keep an eye out.