*sigh* You're thick. You are assuming that if downloading were legalized, there would be no innovation or deviation from the current methods of file sharing.
Don't you think companies like KaZaA would introduce features that would allow people to download entire albums with two or three clicks? Or someone could setup a high-quality music website, and host only high bitrate songs, and charge a nominal fee for downloading each. There are numerous other things that could happen if downloading was legalized. When there's money to be had you can count on innovations.
You also obviously don't know how P2P file sharing works, either. The makers of KaZaA do not run some big network, they don't host all the files, everything is hosted on the client's computers. There is relatively little overhead cost for this kind of operation, when compared to a 'traditional' method of sharing files (server-client).
Sharman Networks would undoubtedly add easy to use features and countless new bells and whistles to their Pro version of Kazaa. People pay for the Pro version, and then proceed to use the free service. That's how things are paid for. If music sharing were completely legalized, the 'music industry' (the big companies) would have no chance of making enough money to stay afloat, because their product could be found everywhere, via high-quality copies.