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Personally, I think you did the right thing.
They are not guaranteed anything. If they wanted a private conversation so badly, why didn't they load up AIM, ICQ, YIM, MSN Messenger, whatever?
Privacy should be given, but on the same note, it has a limit. When a player was threatening to shoot me with a rifle at a mud convention, I decided to see if what people really said. Every channel was monitored for any variation of my name, along with some other keywords.
It lasted a short while and then I removed the code, but there were many, many cheaters caught simply by saying my name, hoping I wasn't watching.
Interesting Stuff.
Anyhow, you did the right thing. Penalty wise, I hope you simply warned them first before flying off the handle. If they kept it up, then become irate.
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