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This argument is akin to the idea that if enough people think something's harmless--like racial discrimination, for example--well, that's okay.
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Actually, it can be argued that shared morals define (or are defined) by a society. So if you lived in a culture where most people believed it was harmless then you'd probably feel that it was okay. And there are lots of cultures that do embrace things that we in the West would consider to be unfair discrimination, and they probably consider themselves to be morally superior to us in the West. Are they wrong? They don't think so.
I think it's a red flag whenever a society has a significant percentage of its population ignoring the laws, just as we seem to have here. What it probably represents is a shift in how society views intellectual property - eventually the shared morality of such a large number of people who don't view copyright violation as wrong is going to have some effect on society as a whole.
It seems clear at this point, however, that people aren't going to stop doing it and there's no way that laws are going to be used to punish everyone who participates in it. So maybe the laws need to be changed to acknowledge the reality that is already going on.
I don't think that the argument, "You're just rationalizing", is going to make any ground with anyone either. The underlying assumption there is, "You know it's immoral, the rest of your arguments are just you wiggling out of responsibility for your immorality". Which, apart from being wrong, is insulting and doesn't lay the groundwork for shared understanding. My read is that people who fileshare honestly don't feel there is anything wrong with it, or feel it's no worse than any number of a thousand things we do every day without any twinges of guilt.