Time tracking software can be quite useful, but it can also be very invasive. This blog hails it as a productivity increaser: http://blog.cyclope-series.com/2009/05/how-to-use-employee-time-tracking-to-create-a-plan-for-productivity/trackback/. I am not sure that using time tracking to track employees non-work-related activities at work is actually a good thing - I am very sceptical to surveillance. This is not a very good way of using a time tracker.
A good time tracker is a very simple app. It should be manual, and each employee should manually enter time spent on each task. And then, talking to the new intern for an hour by the coffee machine is still OK. It really is. For "manual" time tracking software, take a look at portablecommandline.blogspot.com .