First, it's not illegal. It's in violation of copyright, which is a civil matter, not criminal. (Or at least should be, the Patriot act, DMCA, et al. may have changed that.)

Second, I don't see how Napster is (legally) in the wrong at all. It's certainly questionable, but making a product that can be used illegally (for lack of a better word here) is not in itself illegal. It would seem the corporation-loving officials we've elected, though, disagree, and like to subvert the law to make it so.