The Russians wouldn't get any useful information from Bush and his people by using a visible surveillance device, such as a floating balloon. That's much too obvious and the secret service would see it immediately. More likely, the balloon had mini-cameras attached to it that were keeping an eye on the entire area for anyone trying to do any harm to Bush.
Although journalistic freedom has certainly declined under Putin, I would say that overall Russia has moved way forward economically under Putin and he's done well at the very difficult job of stabilizing the post-soviet Russia.
Newsweek was traveling with the President on that trip and they did a very long article on how Putin was spying on the President the whole time he was there and how Bush just shrugged it off and tried to use humor to lighten the mood at the summit.
http://www.msnbc.msn.com/id/13988981/site/newsweek/