Personally, I always liked something along the lines of "any application that may track a person's or organization's online and/or offline PC activity and is capable of locally saving or transmitting those findings to third parties, most often without their knowledge or consent", but the Coalition have settled on the following meatier version:
Spyware and other potentially unwanted technologies are those that "impair users' control over material changes that affect their user experience, privacy, or system security; use of their system resources, including what programs are installed on their computers; or collection, use, and distribution of their personal or otherwise sensitive information."
Whilst this is clearly a bit on the long side, it does provide a pretty precise definition, and leaves the Coalition to the greater task of trying to rid the Internet of the nasty stuff. The Anti-Spyware Coalition is also working on outlining common procedures for dispute resolution for vendors who believe their software has been unfairly flagged by an anti-spyware. So some progress is being made, we just have a long way to go to getting this nonsense stopped.