[Azselendor]

DEG's method would go a long way to help curb piracy. But it won't stop, as fyron said, people with virtual drives. However, if you tax media duplication devices, office theft of blank cd's would rise and shoplifting as pirates aren't detered by taxation.

Here's what I'd do.

1.) Have ISP's block ports used by peer-to-peer systems and ones that can be used.
2.) Require all servers to have a domain name if it is accessable to the web. This allows pirates to be hunted down and found. Domains can only be registered to valid mail addresses, no po boxes (but I'd allow an exemption for rural locations by means of a special application).
3.) Sites containing porn must use a .XXX extention as proposed. Many warez sites have prono advertisers and we can force them into the .xxx domain type and then use ISP's to lock them out.
4.) Levy taxes against companies that manufacture recordable media software, hardware, and media. Individuals that make the software can be made liable for infringment suits if their software is involved in piracy.
5.) Create a system of financial rewards for the successful capture and conviction of pirates. This will seriously harm flea-market pirates.
6.) Make piracy penalties involve a mandatory prison sentance and fine, not one or the other and up to limits.
7.) Require pirates to register in a national database distributed to computer companies and retailers when caught. Much like how sex offenders can't work or live near children, we want to make sure pirates are run out of computing for good.

Now that won't stop pirates, just really give them a bad day. We need to combat this on the industry level as piracy is rampant in price-senstive nations and areas where $50+ price tags on software is insane.