Things like watching modem lights is called side channel cryptanalysis. It seems to be pretty commonly applied. With the advent of cryptographic software being available to the home user side channel techniques are being applied more and more. Many countries require you to have a special license to place a Faraday cage around a building so this would suggest they are monitoring electromagnetic emissions also.
If you fancy a read about the history of codes and ciphers then I strongly recommend this
http://www.amazon.co.uk/-Code-Book-Secr ... 13?ie=UTF8
It is an easy going read in a story style, just read the reviews on Amazon. Definitely worth £6.
