Cubicle prison is Hyperbole.
Sorry, I just don't buy into the "the only way to guarantee software developers don't screw up is to lock down every single thing they do". I've worekd there. Bosses that monitor every URL visited by their employees, Companies that don't trust their developers to work, and instead make them fill out time cards for every 15 mintues spent on a task throughout the day (not for billing purposes), Internet firewalls that only let through a whitelist of sites, Full Disk Encryption on Desktop PCs so that build times go up by 4x but we can check the box with some IT blowhard, IT departments that control every single piece of software that goes on your computer, Threats of firing unless you comply with some silly IT regulation (really, you threaten to FIRE HIGHLY PAYED EMPLOYEES as a matter of general procedure??). Man, the list goes on and sounds whiny, I guess. But it sucks, it's an awful atmosphere to work in.
If I'm going to write software for you for a living, there is a better way. It's called trust. There are plenty of companies that trust their employees. Sometimes thieves steal things. No IT policy prevents it 100%, But draconian IT policies do prevent talented people from working at their companies. Some safeguards are good, not all.
The OP (AC) said "would you have ANY machine with access to the source code, connected in any way whatsoever to the outside world?". I would not work at that company. If I can't get to the internet while I work (and access the source code), I won't work for you. Call that entitled, call it childish, but I call it normal business in 2012. Software developers have options, and I bet if you have that culture at your company, they don't want to work for you and do it *only* because they are stuck there, or aren't good enough/motivated enough to find something better. (I'm speaking to the general you, not you specifically EDIII).