Why is Microsoft watering down WGA on Vista SP1?

Yesterday's revelation that Microsoft would be watering down Windows Genuine Advantage (WGA) in Windows Vista SP1 came as a bit of a surprise to me.  Why, if WGA has been so successful in the prevention of piracy, and why if the mechanism caused so little collateral damage (both points Microsoft has been adamant about throughout) now backpedal and water down WGA?

The line that Microsoft has always maintained was that WGA prevented theft, protected users from being sold illegal software and that only a tiny number of users running genuine copies of Windows were affected.  When put in those terms, WGA on Vista seemed like the perfect solution to the problem of piracy.  Now, I've received first hand accounts from people who were adversely affected by WGA, and it doesn't sound pretty, but these were always put down as the exception, not the rule.  WGA worked.  Not only that, but Microsoft has spent a year perfecting and fine-tuning this anti-piracy mechanism in order to further reduce false positives.  Counterfeit rates for Vista are half that of XP.

Now, I'm not complaining about the removal of the reduced functionality mode (RFM) and non-genuine state (NGS) not because I run pirated copies, but because I firmly believed that the mechanisms were anti-consumer, but I am surprised at Microsoft's change of heart.  After all, this now means that pirated copies of Windows will run indefinitely and the only inconvenience that users will suffer is a black desktop background and the periodic appearance of a nag screen telling them that their copy of Windows might not be legal.  Also, as an added bonus, people running pirated copies will be offered cheap licenses to encourage upgrades - prices that are well below what the retail version sells for.

So I'm rather stuck as to how to explain why Microsoft has had this change of heart.  Here are some possibilities I've come up with:

• Microsoft sees current WGA policies are a major roadblock to Vista adoption - Personally, I think that performance and comparability concerns are far more widespread.
• The collateral damage inflicted by WGA was a lot worse that had been previously reported - Given the number of reports that I've personally come across, this is quite likely.
• Hackers were able to quickly defeat any anti-piracy countermeasures that Microsoft built into Vista and therefore it wasn't worth the time/effort/money to continue the battle - The idea that there's only so far you can go to protect software and that if someone is really determined to pirate it they eventually will could be a reason why Microsoft has chosen to water down SP1.

Still, the removal of reduced functionality mode and non-genuine state is one more reason to want SP1 and one more reason to give up on XP and make the move to Vista.

Thoughts?