Let me answer the question, "Why is this important to know?" before we get into the thick of things.

The following information will be of interest to any Macintosh user who is planning on also running Windows on their Apple hardware. It will be very important to anyone planning on running two copies of Windows on their Macintosh hardware (for example, one copy in Parallels and another under BootCamp) because you will stumble into WGA problems when you attempt "Windows Activation" for the second copy. This is easily dealt with by doing a telephone activation of the second copy of Windows during which (after you have informed the Microsoft representative that you have Windows installed on your Macintosh under Parallels and now you are attempting to install it under BootCamp) you will be given a second activation key for your machine. It is important to record this activation key in case you need to reinstall that instance of Windows due to hardware failure/ replacement or the like.

Wayne

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...from:

http://blogs.zdnet.com/Bott/?p=98

July 18, 2006 MS says WGA has caught 60 million Windows cheaters Posted by Ed Bott @ 6:44 am Digg This!

Two weeks ago, I reported on a terse e-mail exchange with Microsoft, in which a spokesperson acknowledged that 80% of all computers that fail the Windows Genuine Advantage validation check do so because they are using stolen or pirated volume license keys.

[...]

Microsoft’s Alex Kochis, a member of the WGA product management team, published a blog entry trying to add more details to the discussion. In "When a 'False Positive' isn't a false positive" (http:// blogs.msdn.com/wga/archive/2006/07/16/667063.aspx), he passes along one staggering statistic: “About 1 in 5 of the 300 million [computers running Windows] that have run WGA validation fail.”

[...]

He goes on to point out four scenarios:

Scenario 1: High-quality counterfeit copies of Windows. Apparently this number isn’t very large at all. As Kochis notes, “So far we've provided hundreds of free copies of Windows to users who've been ripped by high-quality counterfeit…”

Scenario 2: The user installs the same copy and key to more than one PC at a time. I don’t understand why this scenario occurs at all. Is the Validation utility really looking at individual keys and identifying people who are reusing a retail or upgrade copy? In this case, shouldn’t activation fail when the user tries to install the second copy?

Scenario 3: A friend or acquaintance offers to “fix” your computer and installs a pirated or “cracked” copy of Windows. I can definitely see this one happening, especially when a system is compromised by a spyware or virus infestation.

Scenario 4: You take your PC in to be repaired and the repair shop takes a shortcut by reinstalling a volume-licensed copy of Windows. Again, I can see exactly why this happens. How many customers bring in their official restore media? Not many, I’d wager. How many repair shops want to take the extra time (and charge the customer) to restore from the official media? What happens when the media that came with the PC is out of date and the shop has to install a service pack and several dozen patches? In that scenario, should the customer have to purchase a brand-new license when they already paid for one?

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...from:

http://blogs.zdnet.com/Bott/?p=113&tag=nl.e622

Busted! What happens when WGA attacks Posted by Ed Bott @ 4:45 am

When Microsoft's Windows Genuine Advantage software kicks in and identifies your copy of Windows as "non-genuine," what happens next? On the surface, at least, Microsoft is all tea and sympathy: "You may be a victim of software counterfeiting," says the official message that takes over the Windows start up screen.

[...]

With Microsoft’s assistance, I’ve just installed two illegal copies of Windows XP on a test system here. The idea was to show Windows customers what the WGA experience is really like. (I’ve documented the experience with a series of screenshots and accompanying notes in this image gallery.

[...]

What if you own a legitimate license, but your copy of Windows was replaced with a bootleg version by a repair shop or a well-meaning friend? You shouldn't have to pay for a new copy. The option, last on the list and confusingly labeled "Update your product key," actually explains how to replace a phony key with one you legitimately own.