I think what madmike and Bob S are referring to is the carrier current method. It can be used for broadcasting or sending digital information over power lines. The same principle is used for the X10 home automation system. And yes, transformers will greatly attenuate these signals. However, a bypass can be installed on the transformer to allow the signals to pass.
The system used for internet service is called broadband over power lines (BPL). I don't think noise interfering with the broadband signal is the major cause for concern with this type of system. It's usually the other way around. These systems are sending broadband HF signals over power lines which are not designed to be used in this way. Losses are so great that amplifiers must be installed every 100 to 1000 meters. As a result, there can be leakage of RF signals which can cause interference to radio receivers. This can affect emergency mobile communications and the amateur radio service, or any nearby radio receiver. It's my personal opinion that BPL is a very bad idea. I think there's a lot of money involved and that's what's driving the whole thing. Even the FCC caved in and tried to push this along while trying to hide evidence of how poorly the system works.