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AZ, I think there's another group you've left out: "unwitting pirates." There are quite a few people who assume that if it's out there on the internet and can be downloaded for free, it must be ok. Kids, especially, fall into this category, especially when a search on a book or song title is likely to turn up torrents or youtube links for the first several hits. I don't know what percentage of people might fall into this category, but nagware might actually have an effect on them... if not immediately, at least further down the road, when they have more money.
I personally don't think DRM is effective in stopping any appreciable fraction of people who would otherwise illicitly copy content. Amazon/Mobi is a good example: when Mobipocket was simply one of several available formats, and very little content was only available in Mobipocket, there were few means of defeating the DRM. Within days of Amazon releasing exclusive content for the Kindle in Mobi format, a means to break the DRM was widely distributed. And the amount of resentment I've seen building toward Amazon for their exclusive Kindle content is huge-- at least among people who already knew about ebooks. I suppose Amazon can hope that they will be able to build a strong customer base almost entirely from people who were not ebook readers before. But that seems like a completely counter-productive strategy to me.
The practical function of DRM is negative at best. I think it is still being used because publishers and some authors cling to a mistaken belief that DRM can actually protect their content, at least somewhat. This is an emotional reason, not a rational one. Instead of looking at the actual consumer behavior and the way the world is changing, they want to believe that somehow DRM can keep things the way they were before digital distribution.
I believe the people who think a digital file should be free and has no value are in the minority. I certainly think a digital file has value. I have paid for many digital files in the past, and I expect to continue to do so. If I am wrong, and the majority of potential readers will simply not pay for content, DRM will not make them do so. (Neither will nagware.) In that case, advertising or patronage or some other system will be required to provide incentives to content creators so they can spend time focusing on their art and not flipping burgers or whatever.
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