Giving my PBEM nation to another player

[Alneyan]

You certainly can The other player isn't playing in the game any more, so he's only going to use his CD-key for one nation, which is fortunately fine!

Even if the other player was still playing another nation, he could play both at once without triggering the copy protection, assuming he used the same computer for both nations (you might run into trouble otherwise as you rightfully pointed out).