Okay, I'll do my best to answer those and get things rolling in the direction you want...
Was there a crime? Yes. The movie studios and television studios make it perfectly clear that distribution of their produced works is only allowed through authorized distributors, which you and I are not authorized. To further that, in the age of digital distribution, you also violate laws that say you cannot copy since in that distribution process, you're not merely transferring ownership of your copy, but creating a second, or third, or fourth copy and maintaining possession of yours.
They had this same issue when VHS was first coming to market, ultimately learning to take advantage of it rather then fight it. Something that happened gradually, but they had the time to make that transition. The difference here is that VHS, because it is physical media, was controllable, and reproductions of protected works took time and money, and each successive copy as you moved further and further away from the original, was degraded in quality to some degree based on the equipment used. Eventually you reached the limits of acceptable quality, and you had to get a better source. Such is not the case with digital distribution since you can make thousands of copies on the fly, there is no physical media to control, and quality does not degrade.
Having learned their lessons with VHS, when DVDs and CDs came to market, they employed the same strategies. Again, the controllable factor was that there was physical media that added time and cost to the copy process. They even acknowledge their concerns over the fact that successive copies did not degrade like VHS, but implemented rudimentary controls at best since it did work. Controls like region codes on DVDs, intentional bad data blocks that do not carry over to copies (playstation games for example), and probably the worst thing, producing CDs filled with songs of little interest to all but the most hard core of fans, reducing the want for a copy (which also hurt sales). This false sense of security lulled them to sleep and they failed to stay ahead of technology. As more people became connected, and internet speeds picked up, rather then being proactive, they waited. That ultimately has cost them. The old saying goes: "An ounce of prevention is better then a pound of cure." Right now, they are dumping millions, if not billions into curing the problem, rather then jumping on and creating a digital distribution system back in the early to mid 90's when being online really started to take off. Worse, the movie studios knew what was happening to the music industry and still took the wait and see approach. Stupidity does have a price. They know this quite well now... I hope.
Where is the crime? It's in the economics. In this case, and those like it, there is a long chain of businesses not receiving income for that CD or DVD you would have purchased in order to watch the movie or listen to the music, or at the very least, the money paid to an authorized digital distributor who has negotiated with the producer to ensure they receive money for their works that they can pass along down to the artists who negotiated their pay for their time and talent. iTunes, for example.
Who should prosecute? The holder of the rights, in an international court. Federal prosecutors should only be used as support, and not the main force behind the case, just as it would be in a domestic court case.
As for IP rights, I feel research should be exempted from the threat of litigation. Health, technology, science in general shouldn't be hamstrung by lawyers. If a company like Glaxosmithkline wants to protect a drug that they are bringing to market that prevents blood clotting in high risk stroke patients, I'm perfectly fine with that. If McNeil wants to delve into breast cancer research, let them regardless of what Myriad Genetics claims is their property. If AMD's next processor architecture is vastly superior to Intel's, let AMD patent the processor and make truck loads of cash because of it, but let Intel take it apart and learn why it's all of a sudden so much better. If SpaceX creates a viable way to continuously send people into space and bring them back safely, and for as cheaply as a round trip plane ticket to a destination half way around the world, let them patent the technology used, however, don't prevent Virgin Galactic from using that equipment as a jumping off point to create something better. Selling at market isn't the same thing as doing research. Patents are there to protect one's rights to make a profit. It shouldn't be used to prevent advancements in life.
As for 'this little guy', in this case, no, he doesn't deserve protection from copyright laws. He is stealing from the rightful distributors. He himself is not profiting from it, but he is directly responsible for reducing profits of the rightful distributors. I could pity him if he was stealing bread from the local market and breaking into the laundry room of a nearby apartment complex because he was homeless and hungry. But this isn't food and shelter. He's not stealing a basic need, he is stealing (or at the very least, enabling others to steal through him) entertainment products. I'm not saying that stealing food is right, even if you're starving, but I'm not heartless, I can take pity on someone who does that. This? It's not the same. I wouldn't expect the world to stick up for me if I was busted for file sharing. (That's not an admission of guilt, just a statement of my position.)
