"Government could force ISP's in the USA to install packet sniffing software that could catch illegal transfers and send them to that big bit bucket in the sky. That is the only workable way for government to prevent illegal transfers."
I think you are absolutely right.
What percentage of broadband accounts do you think would be cancelled if such a mandate were put in place?
We hear 'tin-foil' stories of the CIA monitoring all the world's phone and email traffic with flagging software -a lot of the stories are even true (crinkle crinkle). The problem is when you need a human being to review all the flags that come up, not to mention all those disconnected dots that pile up.
Extra problems that come up include the fact that hundreds of millions of internet subscribers use ISP's outside the US. That plus there's so much public domain files whose status gets cleared on one jurisdiction and is contested in another.
Bottom line: we keep hearing about the end of P2P internet activity, and it's still here.