Allegedly there is a watchdog group who keep an eye on how many files you share. If you share lots of files they bust you. Don't know how they do it or if its even true but I got a personl message from someone saying "oooh you've got a lot of files to share" so I transfered all my files and only share a few now.
It's not illegal so long as you have an original copyrighted version. You can make what is generally known as a reference copy. But file sharing becomes illegal as soon as you part with the original.
If you make a copy of something you dont have on cd / tape / vinyl, you are breaking the law. So be carefull, they are watching us all. Hope this helps.