Out of curiosity, why is this a bad thing (if the service allows you to selectively delete data or nuke your whole dataset)? It's not logging keystrokes or doing screen captures... Just start-time and end-time of window/tab focus.

Compare this to a third party website where you store all of your conversations and many of your passwords (any hosted email or chat/IM), and the privacy implications of RescueTime don't seem that painful... Assuming it actually is something that you care about.