Oh, I'm aware. I always have very specific stipulations put into my employment contracts.
Regardless, I never write anything of worth for those side projects -- mostly experimental things, or using new languages/frameworks I had never tried.
It's more complicated than that, it also has to be "not along the lines of business of your employer".
That phrase can mean different things for different employers. If you work at Morgan Stanley then doing a social bookmarking tool in your spare time is probably fine, if you work at Intuit then doing an iPhone game is probably fine. If you work at Google then everything is potentially problematic, as Google has a knack for poking its head into any line of business imaginable.