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you need electronic activation anyway (correct me if I'm wrong, but you couldn't patch Dominions2 offline).
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IIRC, you could. Dom2 only connected to the server for a key-check when trying to play multiplayer.
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If Dominions3 was available for sale/download, people who pirate it could buy it instead.
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No. People who pirate it would continue to do so. Reasons I heard so far were always along the line of "too expensive", "only play it for a few days anyway" or "why buy it when you get it for free".
It might be that SOME people would buy it instead, those that can't get any retailer to ship it to them. But then I can already bet that you would need more than just credit card or paypal options for them to be able to pay, even if they want to.
Digital distribution can work, but as pointed out, it simply isn't as easy to do as you say.
My personal problem: With the rare and unexpected exception of UBIs German online shop, every single company expected me to pay with credit card. I don't have one. I don't know anybody who has one and would use it online. Add that to the fact that I'd really rather have a solid DVD case with the real CD than some self-burnt stuff. It just looks better on your CD shelf.
I'm no technophobe, I have my diploma in computer-science. But maybe because of that, I also see the problems companies have to face when they try to establish a solution for downloadable content. And my experiences so far (steam, ubi, even microsofts MSDNAA) tend to sway me in the direction of saying: Sometimes, the 'slow' way is better.
If anybody comes in and sees my LEGALLY self-burnt copy of XP, how do I convince him that it is, in fact, legally downloaded and burnt? I have nothing to it but my word and a textfile that includes my name and a license key. If it were delivered (could have been, if I had been willing to pay extra), I would have a CD with that holographic stuff and a 'more real' license.
So, unless I have no other choice (UBI and the Pe-2 addon for Pacific Fighters) I will ALWAYS have my software ordered and delivered the old way.