We use Squid proxy with squidGuard. We use the squidGuard blacklists from squidguard.mesd.k12.or.us (which is a combination of two upstream sources).
Additionally, we use Google's safety tools for general searching and YouTube. For a browser, we use Firefox with Adblock Plus (as I've been too lazy to ween them off that in favor of Chrome with similar extensions).
As we use Macs, I have the kids' own mac mini as the proxy server. It's an old mac mini (circa 2007?), but works just fine for the kids' browsing habits. I've had to view the proxy logs as we suspected my 5 year-old hit a questionable site (he didn't), so having the proxy logs is useful.
Also, since they have a dearth of in-the-wild spyware exploits and viruses as compared to Windows, using Macs helps.