At this point, I agree that many people have been conditioned to think of music as free. But I think you overstate the case. In the early days of the Internet, everyone was conditioned to think of net access as free, but before long, they were all paying $20/month (or more) for it. In a similar way, once there is a market-priced service that people like, they will convert to the convenience of it.
You've got to remember that there is no legitiamate alternative to Kazaa and its ilk. 99 cents a song -- which pretty much preserves the pricing of CDs -- is not the answer, especially if it's coupled with copy protection. This is a new medium. But I'll bet that there is a profitable price that will spur demand, with a lot more freedom to sample and try new music.
I'll also point out that there are a lot of us who've suffered sales declines in the current downturn without the excuse of free redistribution of our product. What's more, George Riemann of Mac Wizards music has analyzed their sales figures and points out that the RIAA members have collectively produced significantly fewer releases in the past two years, and have actually pushed UP their revenue per SKU. So there's really something fishy about their claims that file sharing is the cause of their woes.
I am almost certain that all of the hand wringing is a delaying tactic till they can get their house in order, understand this market, and make their own offerings competitive. If they had more courage and leadership, they could be breaking the back of illegal file sharing today, by beating it at its own game.