|It depends on your network topology.|
1. If your windows server 2003 is acting as a gateway server(ISA) or proxy server(Squid), you can setup internet policies directly in ISA or Squid.
2. If not, you need to configure a mirroring port in your switch, and deploy an internet filtering program(for example: WFilter Enterprise, websense) on the mirroring port to do filtering. You will be able to monitor and filter all computers internet activities from the mirroring port.
3. Opendns is also a good solution to block websites by dns.