That's a great question. You are right that someone need only 'look' at what you are downloading to identify your content. But this assumes that the content is unencrypted and there is a centralized way to do this. In BitTorrent, neither of these conditions is necessarily true.
As we show in our paper, though, even if you obscure the content you are downloading, it doesn't help if you download from someone else (which is always true in BitTorrent) and an observer can determine what that other person is downloading. In other words, you can be made guilty by association with someone else.
Swarmscreen prevents this guilt-by-association attack by hiding the content you are keeping among many concurrent downloads to content that you are not keeping. For more details on this work, you can see the technical report here:
http://www.aqualab.cs.northwestern.edu/ ... een-TR.pdf