They won't allow you to download any software from their website unless they have validated your copy of Windows. This includes their current beta software: Windows Defender, Internet Explorer 7 and Windows Media Player 11.
Even if you manage to install a "crack" that will allow to download from the MS website, the programs still will not install unless your copy of Windows has been validated.
As for the whole IP monitoring thing... I'm not sure they do that... I suppose it's possible, but it's mainly to discourage people from using "illegal" copies of Windows by disallowing them access to certain programs / features they may want.