It doens't appear to matter how a moderator's permissions are set -- you cannot restrict them from viewing private groups using the settings vB offers. This comes from ym reading several posts at vB.com where staff says you would have to customize the code to prevent moderators from viewing private groups.
It does seem that I can go in, one by one, and restrict their settings, but ideally, it should be a usergroups setting (IMO).
http://www.vbulletin.com/forum/showthread.php?t=266566