confront him... and let us know what happens
As for browsing non work related sites on working hours ... you've not got a leg to stand on IMO. Get an EEE PC style laptop and get a usb dongle and do as much smurfing as you want on your own time (coffee breaks, lunch etc)
They seem to think that you are not working properly if they banned a site they know you sit on so don't give them anymore ammo, the advice to use your own PC at home will only get you past the banned site issue you have but will probably eat more bandwidth from the company pipe and that might upset them even more...