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progress is not being kind to artists.

"artists" or "established recording industry"?

Instant global publishing, music selection services, fewer middle men, no "payola" required to get heard, reduced production costs.
Sounds like a huge boon for artists.

Because of this there is less revenue – people are spending less on music.

So?
How The Music Industry Garnered Record Profits in 2008
For the above reasons it's also become much cheaper to make/distribute/sell/promote music.

Sounds like you need to stop drinking the RIAA coolaid. Just because they say they're losing money on every MP3 and can't afford to pay the artists a fair wage doesn't mean it's true.
Is the current trend bad for the recording industry? Depends on how you read the above link.
Is the current trend bad for big artists? Possibly - people are no longer forced to buy 10 crap songs to get the 1 good song.
Is the current trend bad for new artists? Can't see how it could be.

I thought Apple already proved the best way to fight digital piracy is to offer an extremely well stocked library that is shinier and easier to use than torrents. People will pay for convenience.

A year ago, it was reported Apple made 556 million in music sales on iTunes.

In fact, if you actually learn the lessons of the music industry, going digital is extremely profitable. Frederick Stamphammer, the RIAA Vice-President of Digitization says this is how the music industry is weathering the economic crisis.

They sent NPR to war.

Can Large Corporations Buy "Cool?"

Of course they can! A good example is the entertainment industry's Captain Copyright!

Why, if that doesn't make little Timmy stop downloading his Metallica MP3s, then by golly nothing will! Captain Copyright is totally fresh!

No, it doesn't. The files are not altered.

Hmm, did they change that? Last thing I read said:
Zune accomplishes this amazingly stupid feat by wrapping shared music in a proprietary layer of DRM, regardless of what format the original content may be in.

That is only on shared files, yes. However that is still forced DRM, something Vista does not have at this time.

...but they're not stupid. DRM is opt-in, specified by the media file.

Oh, is it?

http://www.medialoper.com/hot-topics/music/zunes-b ig-innovation-viral-drm/

They have already made their decision! They know better than you what should be protected and what shoudln't!

Be an asshole on your own time!

My interpretation of MS's press release is that Creative Commons music will not be shared at all unless they are selling them through MS's online store and authorize it by opting in. Songs you rip yourself will not be sharable.

Looks like there's been an update to TFA since you looked at it last (giving you the benefit of the doubt). Medialoper's post added this addendum, which "actually came from Microsoft's own Zune Insider, Cesar Menendez":

"I made a song. I own it. How come, when I wirelessly send it to a girl I want to impress, the song has 3 days/3 plays?" Good question. There currently isn't a way to sniff out what you are sending, so we wrap it all up in DRM. We can't tell if you are sending a song from a known band or your own home recording so we default to the safety of encoding. And besides, she'll come see you three days later. . .

You can read Menendez' full blog posting here, if you're interested.

So, the long and the short of it is that the Zune will share Creative Commons music, and indeed anything else you stick on it, without necesarily going through MS' online store, and without "opting in" to Microsoft's draconian DRM. You seemed to think that:

It will only work for songs bought from MS's store and whose publishers specified it to be sharable/advertising enabled.

Unless things change between now and release, that isn't actually that case -- the publishers / file creators don't have one single iota of input in this process; the Zune will add DRM to every shared audio file, regardless of license. So I must agree with the idea of "contributory and vicarious infringement", only in this case, it's not an offense against the RIAA caused by sharing, it's an offense against every single copyright license that disallows such DRM shenanigans. Sure, some will argue that there simply isn't that much content covered by Creative Commons and similar licenses, but such content is on the increase, and for the Zune to add this kind of draconian DRM automatically to *everything* is simply Not Cool(TM).

You mean it adds DRM to files I already have? Files not bought through their online store?!

Based on what I've heard, it's not true that it adds DRM to all files on it. The issue is that it wraps DRM onto files that you wirelessly share with your Zune friends - whether you want it to or not, whether it's permitted to (Creative Commons licencing) or not.

An article about it at http://www.medialoper.com/hot-topics/music/zunes-b ig-innovation-viral-drm

no physical CD, no Case, no Liner notes that are already printed on a commercial quality printing press (not some crappy liner notes you have to printe out on your crappy inkjet), and they pay pretty much 0 production cost.