The idea that they need to know what you're looking at to serve ads just doesn't make much sense.
Also, 'more data = evil'. I don't see that very justified. And of course, they are not sending all that you are looking at to their servers. That is practically impossible right now.
To the second: Its not that more data=evil, it's that 'evil' has broader access to you, your habits and potentially your kids and their habits, etc. I do not trust google all that much (I say this with a gmail account I use for work). It's not that I don't trust them, its that the data is powerful and can easily be used for unsavory activities. Also, practically impossible was an iPhone in 2003, but a mere 4 years later there it was. That Moore's law is really something.
For example, look at glass. Yeah, it's got a marketing problem now, but the tech is right out of 'Snow Crash'. Its amazing! But that damn camera on it. I have a real suspicion they are just tracking where you look to get abetter idea of what ads attract people in real life. Its only a matter of time before they have a feature that tracks your eye movement and focus to help take pictures or whatever. And then what? They know what you are looking at in real time. So what? Well, I just don't get the 'don't be evil' vibe from that kind of data.