I had not heard of the program until now, though a little quick research indicates it's a device-driver level program that acts as an IP address proxy in memory, checking IP's against a blacklist. If they return true from the list it denies the traffic. The idea is to prevent your machine from communicating with specific IP addresses or IP ranges that you might not want it to. In theory it's a good idea, but it's only useful if you know the IP addresses you wish to block. Where I could see this program being useful would be for the person who knows of specific websites that annoy him or her with things like advertisements or objectionable content and they wish to block their machine from accessing those sites. If say, hypothetically speaking of course, someone were trading in copyrighted material it would not prevent the RIAA or MPAA or other "agencies with money and interest" from monitoring a P2P network from an anonymous IP address. Simply put, this program is only useful for guarding against the "devils you know". I would say for those engaging in illicit activities it would offer a false sense of security.
Now as for routers protecting your machine, routers are great for blocking incoming traffic. They stop port hacks cold and can stop port scans entirely if configured properly. Not all routers can be configured to completely "stealth" a machine, but then you have to decide how much functionality vs privacy that you want. What a router typically won't do is stop your machine from dialing out to another machine on the net. You can configure them to do that, but only to a point. Peerguardian might be useful for blocking outgoing connections to, say, an ad company like Massive that farms out in-game ads, or other "snoopy" sites that, while you're not doing anything illicit, they're trying to gather info about you that you may object to them doing. It could be useful for stopping some programs from "phoning home" as well. I could see it possibly being a privacy enhancer in that respect, but as for how well it works or if it has any bugs or problems, you'll have to ask around.
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