The problem with the actual charges, from what I read, is that the emails show that MegaUpload was trying to do the absolute minimum necceesary to comply with the DMCA. They were, in fact, not actually living up to everything that they had to do to under the DMCA and are thus guilty of copyright infringement under civil law, but the government decided to press criminal charges instead, and making a good faith effort to abide by the DMCA is enough to get out of those charges.
> The problem with the actual charges, from what I read, is that the emails show that MegaUpload was trying to do the absolute minimum necceesary to comply with the DMCA
I'd change that to "trying to do the absolute minimum necessary to APPEAR to comply with the DMCA, if the request was from a party that had enough legal resources to make trouble".
If they had one copy of your file stored without authorization on their servers, but it was accessible through, say, 5 different URLs, their response to a DMCA takedown request was to make the specific URL you knew about invalid, but to leave the file up and leave the rest of the URLs working. That's why I say "appear" to comply.
When they were first shutdown, there were first person reports here on HN from small developers who had their takedown requests ignored, which is why I suspect that you had to be someone reasonably big for them to even bother to try to appear to comply.
This was arguably the right thing to do. Each url represented a different time someone had uploaded a binary identical copy of that file to the site. Each one might or might not be allowed by copyright.
Imagine we both rip a track from a fresh cd using the default encoding settings on some standard software. We get two bit-for-bit identical files. We both upload them to MegaUpload, you because you want to do something fair-use compliant while I want to share it with the world. You take your link and use it legally, I take mine and put it one some shady site. The RIAA finds mine, judges it to be in violation, asks MegaUpload to take it down. MegaUpload would be wrong to also take yours down because yours is there legally.
It's not that a certain set of bytes, all that a MegaUpload url represented, is illegal or illegal. It's whether the person who posted it had the right to do so. Copyright is tricky because it's metadata.
I believe that they compensated people for putting up files as well. It's not impossible to have a case where you want the copies of your files put up by some other uploader taken down without wanting your own removed. The fact that one copy was put up without permission does not necessarily mean they all were, though that's probably the case 99% of the time. Of course, depending on how you read the DMCA, they may have been obligated to do that anyhow. We'll have to see how it all plays out in court.
EDIT: A better explanation: http://arstechnica.com/tech-policy/2012/02/is-megaupload-a-l...