Is it true that the government has "Spy flies"?
Flies with cameras or microphones on them.
Sort of. They have a drone in the form of a mosquito.http://www.youtube.com/watch?v=KMI7HIhKdIohttp://www.youtube.com/watch?v=7S-svhBXs1A
Yes, they have and are developing MAV's (micro air vehicles) to do surveillance of hostile targets and such.