It isn't exactly the government that is watching us, for the most part. Mostly, it is the private entities like Google that we use every day. The government doesn't waste the money required to actually watch that many people. (Actually, those $10,000 toilet seats were because they ran out of funding to pay for services, but had too much for products, and payed for services through products)
Personally, I think that the logging done by companies like Google is for their own good. They get a better product out of it, and they have their asses covered when the government forces them to give up records. The real danger is insecure databases, which allow hackers to steal your info and make a profit off of you.
As to the dystopia, it could happen, but not for a long time. Even now, we have far too much in the way of people rallying against the loss of privacy, and winning. The gradual decline into dystopia takes many many years, and it probably won't happen in my lifetime.
As for technology playing a role, think about it this way: without technology, a 1984 state would no be possible. Without the ability to instantly transfer info across great distances, and to record the activities of people through things like keyloggers, cameras, etc, the 1984 state would never and could never come into being.
As to the censorship thing, that isn't the government. That's the people. People love Obama, and aren't willing to see him disparaged. The government does censor, but only in extreme circumstances, like the "cookbook" that was banned almost worldwide for the sheer volume of illegal actions it gave detailed instructions to perform.