The key can't be lost as such, it is generated from various bits of information unique to your PC (network card MAC address, drive serial numbers etc).

What can happen is that if you change lots of bits of hardware all at once the key can change enough so that you need to re-activate your copy of Windows (which involves phoning Microsoft, giving them your product key and new hardware key).

The ActiveX control could be seen as a minor problem. Some people might choose to turn off lots of ActiveX support in IE to increase security, if they did then they wouldn't be able to download the various Windows addons that now require validation. If that is the case then the relevant Microrsoft site can temporarily be added to IE's trusted zone and the approriate permissions set for the ActiveX control to work.

Just like any other ActiveX control it could have a security hole of some sort that hasn't been found yet.

And yes, there are lots of pirated copies of WinXP out there.

P.S. Yes, I know the hardware key doesn't work quite as I explained, but that is close enough for this discussion