I've been thinking about this question for a bit and something kept gnawing at me with the other answers, and I finally figured it out. They're all great answers, PROVIDED everyone's on the same page about both the goals and the process. And I think that's where the conflict comes from.
First - Discussions are good and necessary. But most of the answers presume that all of the discussions are a) either work-related, b) focused on employee relations, or c) the employees know when to quit and go back to work. In my experience this rarely happens. So I can see the sponsor/Manager getting frustrated.
Second, as a Sponsor, if I saw everyone spending what appears to be considerable time talking, about what may not be project related I would have two initial concerns - a) am I paying for the time by the hour, and b) even if I'm not, it appears that the time estimate was inflated to include time to talking and socializing. So I would wonder in the first case, "am I paying them to stand around and talk about personal issues? and in the second case, "could my project actually be completed sooner than they told me if they were working rather than talking?"
Third - Zsolt made a good point about knowledge sharing. And this point goes to the individual project - but is that part of the project, and is it a necessary part of the process? In other words, for some projects research and collaboration are necessary, for others it's not. so is your project one that requires it, or are the employees doing because they 'want to'?
And here's where the point about alignment comes in - does your sponsor know what goes into making this project work? Do they understand that there may be times when it looks like things aren't being done, but that those time might actually be the most important discussions? Conversely, does the team understand what the particular requirements are on this project? Schedule, scope, etc? Maybe this just isn't the project for a lot of talking and they need to hold for the next one.