The reason they block out conversation is for legal reasons. if the housemates are talking about someone like their Mum or a friend, that person could sue them for slander! So they can only broadcast stuff that does not involve "hearsay" about people in the outside world.
Regarding music, I think it is to do with licensing. if they play music then they have to pay the writer/performer of that song via the PRS. If you ever watch those crappy progs on E! channel on Britney etc, you will notice they contain NO music! No examples of them singing!!!! 'Cos that makes it a very cheap programme to make!!