Here we have yet another instance of the monkey press being fed releases instead of getting off their asses and doing their jobs. This is not "shocking". This is not "worrying". This is acceptable, even expected, behavior of a diplomatic corps, and has widely been known as "legal spying" at least back to World War II (where I first encountered the term reading history books of the period).
Here's how it works: in order to function on the international stage, Freedonia must send representatives to Sylvania. Freedonia informs Sylvania of the names, addresses, functions, etc. of all the people it's sending to Sylvania. Sylvania is assumed to now know who these people are, and if they think they must, follow these members of Freedonia around while they are living and, presumably, working in Sylvania (certainly the one in the trench coat with the horn would be suspicious).
Countries are specifically prevented from restricting the mobility of diplomatic staff by at least two international treaties. Therefore, if Trentino and Rob Rolland want to take a stroll there's nothing the Sylvania can legally do about it. The idea being since they've been registered as part of the diplomatic corps it's Sylvania's job to keep an eye on them.
If their stroll happens to take them by, say, Acme Arms Incorporated while AAI was having a show-and-tell of Sylvania's new "widget-o-wonder" death ray, Trentino and Rolland would be well within their rights to stop and listen. They could even take pictures if they liked, and as long as it was legal for any citizen of Sylvania to do this there's not a damned thing Sylvania can do to stop them.
Even if it wasn't legal... lets say Trentino and Rolland happened to get caught paying someone to break into AAI's offices late at night to take pictures of the plans of the "widget-o-wonder", all Sylvania can legally do is send them home. That's one of the points of diplomatic immunity. We are not barbarians here in this world of nations, and if a diplomat gets loose and sees something he or she isn't supposed to it's the host country's fault (now, the someone they were paying, that's a different story).
The Soviets and Americans were famous for these hijinks during the Cold War. Both embassies had many times the number of required staff working there. And you can be darned sure everyone was keeping a really close eye on everyone else.
That's why this particular "shocking" report is so annoying. The only reason we know the diplomats are doing this is because they are diplomats and sometimes that's what diplomats do. Some Pentagon weenie or a spook over at Langley decided to "send Iraq a message" that we know they're watching us, and they used the press to do so.