I read an article in the WSJ about 10 years ago about how cable (and now, presumably, satellite) companies not only collected data on individual household's viewing habits, but also was beginning to target ads to the households.

I haven't read anything about it since then that I recall, but I've always been under the impression that yes, they keep track.

but also was beginning to target ads

Were. Were beginning to.

According to cable company employees about digital cable, no, unless it is something like pay per view or it being off or on.

According to cable company employee (Time-Warner) about digital cable, yes, but aggregated and not individually-identifiable. This guy also set us up with free premium channels after we plied him with a bowl, though, so, yeah, I don't know if his information was accurate.

My friends who work for Time Warner say no. But then, if DVR has the same features as Tivo it seems it would have to, in order to record things it thinks you will like based on past viewings. (my roommate had a tivo for a bit, it was convinced he was a nazi due to his love of the history channel.)

(I think this would make a good AskMe question.)