I'm wondering if the URL encoded in a browser SSL connection as well?
I had a particularly anal landlord not long ago, and we relied on their wifi, and he didn't want anyone downloading torrents, and went so far as to block nearly every port, as well as blocking any URL containing 'torrent'. So of course a torrent file couldn't be downloaded, but searching Google for 'torrent' would result in no page loading, and even news sites like TorrentFreak.com came up blank. (Yes, a brilliant strategy. I wasn't actually trying to download torrents, but wanted to play some games like Diablo 3, which were also stymied by these port blocks. Ended up using wifi sharing on my mobile phone, which actually worked surprisingly well - only used about 30mb per hour.)
I don't recall 100% if this still blocked me with a HTTPS URL (I believe it did give it a try), but I even went so far as to try out a VPN service, and even THAT was blocked -- still couldn't load any pages containing the term 'Torrent', which really surprised me (and the game wouldn't load.) The router settings trumped my PC settings in this case.
If this is the case, then can't they still track a lot of your web-browsing habits by the URL you're visiting? (Just perhaps not the content of the page sent to you itself?)