I'm sorry but reading all this, at a certain point I have to ask: Why are people (students, faculty) playing along with that? Is there not a point where people are willing to stand up for themselves and say: Enough is enough?
Imagine, students would be asked to appear in the nude to write the exams and undergo invasive checks to prove that they haven't got any miniature transmission devices hidden on their body. Would they just agree to this as well? Would the faculty that's tasked to check the students' orifices play along happily?
I wonder what a degree from an institution that treats students (and faculty forced to use this) with such a level of contempt, treats them as a priori cheaters and crooks instead of teaching them honor and responsibility, is actually worth? The name "honorlock" alone is beyond ridiculous for obvious reasons.
In my days (at one of the Ivies), admittedly a long time ago, I seem to remember that we had to complete a lot of coursework at home and most if not all our exams were open-book. I even remember a test or two where we could bring all our notes from class (not that it did you much good at all, the skills they asked for just weren't in the notes). Not one exam was proctored in that sense, I think, although I remember often longing for one as I imagined them to be much easier: Just regurgitate some knowledge onto the page and go home. No days and weeks refining your arguments and making a case for yourself.
Professors also always knew if someone hadn't done all the work by himself. I remember a girl breaking out in tears during a presentation because she couldn't explain the meaning of a rather boastful technical term she had used in context (and apparently just copied from somewhere).
I think, if I had been asked to install this kind of malware on my PC back then so that some incompetent perv could watch me answering stupid multiple choice questions, I would've laughed in their faces and just quit then and there (I did eventually quit anyway but that's because the offer was just too enticing). Maybe I would've set up an elaborate sound stage with green screen etc. and spliced it into the camera feed to fool the proctors first before turning on some holograms or dirty movies, I don't know (this stuff wasn't so advanced and readily available in those days).
The point is, these setups can always be fooled. Always. You should therefore create an environment where you don't need them. Where people are proud of the work they do themselves, where the skills taught and asked aren't "replayed" in a manner that needs such proctoring, and where people adhere to an honor code that doesn't require them to cheat. If you can't teach people that nowadays, then what are you good for?
How broken must the current educational system be that a) such software exists and is widely used and b) its vendors aren't simply laughed out of the room straight away and c) both students and faculty don't complain at least as loudly about that stuff as they complain about certain other things...