Nonetheless, although Napster and all the others should not be banned, people who use them to get copyrighted music they don't already own are doing something illegal and unethical. Yes, the recording companies are greedy and stupid, and they ought to develop a different business model allowing songs to be legally downloaded more cheaply, but that is no justification.
This is not something that technology can fix. No matter how many layers of encryption there are, it will always be possible to intercept the bits at the very end of the process, just as they go into the speaker, a physical device. Nor will digital-to-analog conversion help, because the waveform can still be recaptured and re-digitized. The best you can do is make it cumbersome and difficult and make legal downloading cheap enough that very few people will want to get involved with illegal copying.
One thing that CAN be done -- only sell physical CDs to identifiable individuals (require a picture ID), and steganographically encrypt a serial number in the music. This can be done in a way that is basically impossible to remove without destroying the sound quality. That way, if a pirated copy DOES circulate, it will be possible to tell who bought the original. Pirates will still be able to get around this by stealing physical CDs, but this trick will significantly reduce the incidence of piracy even further.