Definitely not fair, and while you CAN (as in it's possible) use them during a game, it's definitely cheating.
Here's what the Terms of Service have to say:
"No Cheating or Computer Help
You can NEVER use chess programs (Chessmaster, Fritz, etc) to analyze current ongoing games unless specifically permitted (such as a computer tournament, etc). The only type of computer assistance allowed is games databases for opening lines in Turn-based Chess and Vote Chess. You cannot receive ANY outside assistance on Live Chess games."
As to how widespread it is, your guess is as good as anyone's (maybe the staff here have a better idea on the numbers...)
Just got finished reading through the posts about computer analysis. Not sure if I read everything correctly, but it seemed that there are some programs that will analyze the relative merit of your moves - mid game. So you can use these programs while you are playing games against other players? What are people´s thoughts about this? Obviously not fair, but is this a wide spread phenomenon? Comments?