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How good or reliable is this spyware detecting app and what are the alternatives?

For detecting Spyware is not something it does. It does however let you know if a program attempts to connect to the internet. It allows you to block the outgoing connections.

I don't use a lot of extra add-ons, haxies or monitors, but I run Little Snitch continuously, no problems, under 10.2 - 10.2.8. I like it.

It often flags interesting results (apps you wouldn't expect to phone home - or anywhere else.) It tells you the app, the IP it's calling, and the port it's calling. It lets you authorize a single connection, or set up permanent rules about which apps can/can't make connections to which ports and even to which IPs if you choose. Once you get the first alert for each app and tell it your mood, it sits unobtrusively in the background. I think it's very nicely done, and $25 well spent.

A review on versiontracker noted that CodeTek Virtual Desktop and a screensaver were able to bypass Little Snitch. Normally, most VT reviews are just a bunch of crap, but I'd like to see this confirmed if possible (I'll try myself later on). I've been interested in LS for a while now, but if it can't see everything it's not as protecting as it claims to be.

Those applications are looking to see if Little Snitch is installed and then manipulating the Little Snitch preferences to add themselves to the exceptions list. Extremely dodgy if you ask me. It's not Little Snitch's fault.

The developers of Little Snitch responded by changing their program to make it much harder for application developers to do that. I imagine that other software developers will find a way around it, and a "war" of sorts will follow.