How may i prevent employees from using instance messengers?

We have a small network at office, we share internet using Windows XP sharing feature. How may I prevent employees from using Instant Messengers like Yahoo! Messenger?
(Please recommend a good proxy server too)

There are many programs out there like childlock. These programs can be set on every computer and will limit the programs they can use and a password can be set. Try searching download.com for free trials before you buy but this is by far the easiest way of eliminating this problem.

Best thing to do is block it at the firewall, although i'm not sure how to in a Windows XP ICS environment.

Put a firewall, but Indian Employers are basically very authoritative. If this does not come in the way of work or if people use it in their break time, you should not have a problem. These are acceptable & good employment practices in Europe,America & the Pacific. Best thing for you is speak to them.

why not let them use it r are you afraid you might lose a penny

Did you try putting some limits?? Sometimes IM's are neccessary... but people do abuse. If you see an employee with an orange toolbar, do something about him, discounts, dunno.. and warn them about you bloking the IM service at all..... if your employees result to be kindergarden kids, call an IT technician, he may solve your problem.

Okay, I'm confused, are they talking with each other? Or with friends?
Have you thought about getting the programs removed from the computers?
If they are using it for business, what better way to get things done and effectively.
There used to be the problems of people talking to each other in the work force, now the computer is causing more and more issues for people.
If the person is performing to his ability in his position, I sure wouldn't make a deal about it, but if they are using the talking more than performing their jobs, well, maybe a disciplinary action should be taken. What does your employee handbook set for guidelines on this subject?
I look around these days and all the people we run into in the stores and restaurants have a cell phone plastered to their heads and they don't care if you are there or not. I think these are all factors of our changing workforce and times.
Good luck, hopefully you can come up with something that all can compromise over. Remember you are dealing with adults not children, treat them as such! Your reward will be much better!

Well, its simple just disable the Messenger Service from Services.msc