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In this US owned privately held organization, there are acceptable usage policies in place for Email and Internet usage. Inappropriate usage of Email is subject to disciplinarily action and can lead to termination of employment. This has so far never been grounds for termination although a number of individuals have been reprimanded for such actions.
I do not see why government agencies should be any different. In fact, I imagine the likelihood of 'sexual misconduct' suits could be more prevalent and imposable in governmental agencies. I do not think termination of employment is within line in this occasion, but the organization does pay for bandwidth and hardware so they are entitled to reprimand team members who use the hardware and/or bandwidth inappropriately.
IMHO

Since these people are being accused of inappropriate use of email, there is probably a policy present that establishes what is considered inappropriate. The simple truth is that if such a policy does exist, and your fellow employees broke the rules, they don't have any counter to the charges.

Any organization (private or public) has the right to determine how its email system should be used (unless local laws somehow prohibit this).

More and more countries are enacting sexual descrimination and sexual harrassment laws. The exact definitions used in these laws probably vary somewhat from country to country. In the US, a simple picture of a nude, or inappropriate language can be grounds for a sexual harrassment charge.

Is there anything wrong with "letting your hair down?" Probably not (unless you are doing it in ways that are counter to established laws and policies). But if you use a public medium (i.e. organization-provided email) to do so, you are just asking for trouble.

The company owns the computers, software, accounts, and server. Misuse it at your peril.

Misuse is defined by the owner. If you loan your car to a friend to do an errand for you, you decide if his taking corners on two wheels was an "abuse" of your vehicle. Even if you take a corner on two wheels yourself on occasion.

"Fair" never enters the equation.

In the future, use your yahoo.com address to bond with the boys....

Well unfortunately your policies seem to be extremely tight, not to mention nosey employees.
When you started using email, were the policies made clear to all?

Do others know that this is unacceptable office correspondence? If so, your netadmin will likely review all the email and determine the source. At that point, someone will be blamed and either let go or warned against future mailings (hopefully the latter)with the others returning to work with a new kowlegde of what is acceptable.

As it goes, ANY company has the right to fire an employee for inappropriate use of office equipment. EVEN TR has rules of conduct and it's a free public forum.

If you broke, the copier by sitting on it for your husband/wife, you'd probably get your walking papers, if you got mad and threw a stapler through the window, again bye bye.

Many companies are quite lenient about internal email, I usually send filthy jokes to the offices I administer and usually get worse in return. That's mutually acceptable by the owners and staff.
If ONE person didn't like the nature of the jokes, it would be stopped immediately.

Office politics aren't a way to protect employees. They usually end up in alliances being formed with the ultimate goal of getting rid of someone, a la Survivor. You must be careful what is said to whom and what is seen on your screen. A bad wallpaper could get you fired if the right/or wrong person saw it.

Sorry to hear you MAY lose your friends and associates, but someone has to be nailed to set an example for the rest of you I guess.

In this day and age, particularly in the public service in Australia where freedom of information reigns, it is imperative that workers hold a certain level of respect for the organisation that employs them.

Email policies are in place, not to take the fun out of work but to limit the amount of potential embarassment to the organisation.

I suggest that these people adopt the "front page" theory that we use here. That is, "is it possible that what I am about to send will make it to the front page of the paper (or letters to the editor)".

The concept of email is still largely misunderstood and is not treated with the level of seriousness it deserves.

If you are about to type something that you would not write down on a piece of paper for someone to find, dont do it.

If you want to have fun with email, use your home email account.

I think it is fair for an organization to limit use of its resources to the business of that organization. From a cost perspective alone, it makes good sense. Add to that liability issues and potential loss of goodwill, and it becomes an obvious position.

As for the response to individuals who violate a policy, the key to success is blind justice. Every time a policy is allowed to be broken due to extenuating circumstances, the policy is weakened. Of course, the risk is that an organization hurts itself if policy is established without careful consideration of the consequences.