"So how about having to enter a password to download it?"
It just doesn't work that way - it's not people downloading it from "web sites," there is a LOT more to the internet than the "web."
These are programs that talk to other programs and run on peoples home computers - there is no centralized way to do it, and the file formats used are open protocols, like mp3, with no built in protection.
"P2P is a class of applications that takes advantage of resources -- storage, cycles, content, human presence -- available at the edges of the Internet. Because accessing these decentralized resources means operating in an environment of unstable connectivity and unpredictable IP addresses, P2P nodes must operate outside the DNS system and have significant or total autonomy from central servers."
from
http://www.openp2p.com/pub/a/p2p/2000/11/24/shirky1-whatisp2p.htmlInteresting.
I can see it is a real problem, but all the bright people out there should still be able to come up something other than destroying people's computers. If it is so decentralized, how would the music companies even be sure who is downloading the illegal stuff?