It has proven untrue, several people have reported being able to access all of these sites (read the comments on TechCrunch). I haven't yet called my friends in China to confirm but I'm sure if this was indeed true they would have called me to let me know.

As far as how bad China really is, I recommend more people travel there and judge for themselves. It might be a communist government and they might oppose certain groups that pose a threat to them but saying that they control every company and every person is a bit extreme. There wouldn't be so many US companies setting up shop in China if they didn't trust the Chinese government.