Now that XP is out there, the next, incremental stage is an update that will check the activation key with a registration DB. Privacy issues, you say? The MS database will only know the registered activation keys, not any personal details. The client machine will do all the asking and disabling and MS can legitimately say they don't know who owns which machine or what's on it. Unless they get a warrant for ISP logs.

Cutting Internet connection will break this, of course, but this would be crippling for home users. For business users, there's always auditing. It's not perfect but it'll force enough people to pay.