Quote - Meanwhile Micro$oft requires validation for updates and such, meaning that when you run Windows Update it can tell if you're using a pirated, counterfeit, cracked or otherwise non-genuine version and refused to update (or worse).

This is what Micro$oft thinks, but if the Windows is patched,  cracked or pirated, this new Windows is not more under Microsoft's control.
The same as with the XP's activation code, no pirate XP comes with the activation and Microsoft has no more control.

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The Microsoft DRM is the most idiotic thing and it is flawed from the begining beside all the hardware and software proteccions and encryptions, and waste of CPU time.
Microsoft divides materials in copyright protected and not protected and Vista created a pharaonic scheme for protecting the copyrights that has the same use as the pyramids, none!
First at all there are only two means that you can install protected materials in the PC:
1- Purchasing and downloading from the internet.
2- From a DVD or CD**

1- Purchasing and downloading from the internet.**
If  you purchased some movie or audio and downloaded it you are not going to keep it only in your HD, you will want to burn a DVD or CD backup, you will pay and download 4 GB of a video if is not allowed to have it in a DVD copy?, and the copy must have the same quality as the original material, so item #1 is reduced to item #2.
**
2- From a DVD or CD
**And here ends all the Microsoft DRM, how Microsot can know if a DVD or CD has copyright protected data?, Vista is unable to know it, Vista don't read the tracks neither has a magic ball, the only one that can know it is the DVD/CD player that reads the tracks .
The only thing what Vista can do is to query the DVD/CD player is the data is copyright protected, only when the player ask in an afirmative way Vista is able to protect the data flow in your computer.
If you put a copyright protected DVD in the player and the player doesn't inform that is protected, Vista will handle the data as unprotected.
So all the pharaonic protection measures depend only on what the DVD/CD player will report.
You can think that the players will always tell the truth to Vista, but this is wrong. This doesn't mean that the players must necessarly cheat, they only can ignore the copyright information.
Let take a close look at the DVD/CD players, first at all people that are the customers don't like the protections, if they have the alternative to purchase a protected player or an unprotected, they will choose the second option, so the potential market for unprotected players is very much bigger that for protected.
The second an most important fact is who are the DVD/CD player fabricants?, the answer is easy, most of them are Asiatic. They make the players for all the world and not only for the US.
Most of the world don't want or use the copyright protections, if some do it is because in the country exist some law that force to do it, without any mandatory law, the customers will not purchase a protected player.
You can add China that has a population more of a billion, even few have computers even so, is a huge market for the player and of course no Chinese will use any protected player.
You can expect very easily that 90% of Asiatic player will be unprotected, no matter how much Microsoft, RiAA, BMG, Hollywood will scream.
The US probably will make some mandatory law that all the players used in the US must have be protected players, so any Asiatic player exported to the US must be protected.
And here starts another problem exclusive of Americans, these laws will be applied only to legally imported players, you can't expect that can be applied to the illegal, or pirate CD/DVD obbey any law.
So you have two groups of players, players fabricated by American companies or legally imported from Asia and players purchased in a shop in the corner of the street.
Even for legal players this story doesn't end yet. You can see that a player fabricant must have to do two kinds of players: protected or unprotected. And this nobody does!!!, is not economical compatible for a global market. They do only one class of players, the difference is done only by some programing, can be by a printed card jump or dip, or by means of some software code.
If the protection requires some additional hardware the unprotected version comes without this hardware at a lower price.
All the manufactored players are the same and unprotected, they only turn protected when by progarmming once shipped in an official way.
And is not only a question of the fabricant, even the fabricants are many and the players models are many, all of them use the same few chips manufactored by the same semiconductor fabricant, and the programming is in the chip!
If you have the programming code you can turn a protected player into an unprotected player.
My last DVD player (for TV) that I purchased it was some legally imported, you know DVD has regions, so my DVD came programed to the respective region, but within all the papers that came together with the DVD was a small sheet of paper where was the sequence of keys to turn it into RegionX, even I hadn't the work of typing the keys, it was already in RegionX, the shop did this task for me!
In resume, if your player is protected and subjected to Vista and Microsoft is only because you want it.

Stupidity also evolves!