Hi DarkHaloPrincess,
I'm not a lawyer (thanks be to the gods!) but I suppose Amazon could be forced under certain circumstances to divulge your purchase history to some government agency. Of course, that's true whether or not you own a Kindle!
My understanding is that they can not or do not look at the non-Amazon content on your Kindle. They did that thing a year or so that you mentioned when they deleted content from some Kindles. My understanding is that it was a matter of copyright--it turned out they didn't have the right to sell the content in the first place. I'll bet in hindsight they wished they'd handled it some other way!
But in my opinion, the whole thing was a little overblown. They also reach into your Kindle to do software upgrades. I suppose that there are people who think that's a bad thing--but my guess is that most Kindle owners are happy as long as they have a trouble-free buying and reading experience. I'm glad to say that I'm in that category so far in the almost-two years that I've had mine.
In terms of "Big Brother", I personally think that we have a lot more to worry about from our telcos and ISPs than from Amazon!
So congratulations on your new Kindle! Hope you enjoy it and don't worry too much!