The CEO of a public company can, and often does, buy (and sell) the stock of his company. In fact, frequently the stock of the company is part of the compensation for the CEO. What makes this legal and fair is that the CEO files with the SEC an announcement before he buys (or sells) the stock. These announcements allow us 'in the dark' people enough warning ahead of time. See, for example, the trades of UTX stock by their public officers.
As for trading on information about other companies, if I am not mistaken... that is why Martha Stewart wound up in prison. So, yeah, it does happen. I hope it is caught more often than not.
On a related note, have you seen the movie 'Wall Street' with Charlie Sheen and Michael Douglas?
