The thing is that it tracks application names and not its content. For example, If I used TextMate for 5 hours (which is in the "Dev-Tools" category and set to be +2 productive) the app doesn't know for what I've used it. I could've used TextMate to do something totally unproductive. Even when I use TM for coding, how does the app know that I'm working on the project I should be working on? I use TextMate for so many things, its impossible to track if I'm using it productivly.
Same with websites, you can't tell the productivity of a domain if you don't analysize the content. Is wikipedia productive? It depends on the article. IRC and IM are also good examples. The app doesn't know if I'm using it to be productive or just chatting.
Then there's iTunes. I often leave it open, dim the screen and do non-computer stuff. After 500 hours of tracking, iTunes was my most "used" app because of this. Oh, and I set it to be productive -2, so the webinterface showed that I was very unproductive every month.
Even showing me how long I've used an app doesn't really increase my productivity. Here's a quote from one of pg's essays (disconnecting distraction):
"At first I tried rules. For example, I'd tell myself I was only going to use the Internet twice a day. But these schemes never worked for long. Eventually something would come up that required me to use it more than that. And then I'd gradually slip back into my old ways."
Same happens when showing me that I've used application X for Y hours. Shomething always comes up and I slip back.
Don't misunderstand this, I like the RescueTime guys and the work they've done, it's just that the idea of tracking application names/website uri's isn't perfect.