This is something absolutely unthinkable in our company. However, we have heard of other providers using similar tactics in the past, so always do your research before trusting a provider with your website.
I guess there may be hosting providers that are that insecure, but I doubt it.
There are many ways you can secure and isolate the users. SuExec, grsecurity, strict security policies, 24/7 monitoring are just some of the things a reputable hosting provider would have.