Reply #9: Answers to your questions.

[ManiacJoe]

When I was growing up we used to record songs from the radio all the time on cassette tapes. We had walkmen back then instead of MP3 players, but we exchanged and made copies of cassette tapes all the time. I suppose this is against the law, but no one was ever arrested for it.
Correct, against the law, but no one was ever arrested for it.

What about situations when people loan out CD's to friends? Is that against the law too, since they're listening to music they didn't pay for? What if that friend decides to rip the songs from the CD to put on his MP3 player for personal use? Is that against the law?
Loaning a CD is legal because only one person can listen at a time to the one copy. Same with loaning a book. If your friend copies the CD by either making a CD or MP3s, your friend is breaking the law since he didn't not have is own official copy to start with.

Let's go further, if I loan a CD to a friend who then rips them from the CD and distributes them, who is at fault? My friend for the distribution, or myself for loaning out the CD (assuming I had no idea what he was going to do with it)?
Your friend is at fault for making the illegal copies.

If loaning out the CD or cassette tapes to a friend isn't against the law, then how is file sharing against the law? Certainly, it's a matter of scale, but does that mean I can't loan my CD out to more than three different friends? Are there legal time limits to how long they can hold the CD before returning it to me? Is it illegal for them to rip the songs from the CD for personal use?
The file sharing is illegal because you are giving away copies of the files that do not belong to you. It would be like buying a book, making copies, and giving away the copies to your friends. Loaning the book is fine; making copies is not.

If the answer to the last several questions are no, then what if I ripped the song's from the CD into MP3 format, and then sent those songs to two of my friends? Would that be any different than sending them the CD? If not, then how is this any different than massive file sharing? Is it scale, and if so, what is the legal limit to whom I can exchange with?
You are allowed to make copies of the songs for your own use. You may not give those copies to anyone else. Technically, after making the MP3s from the CD, if you were to loan out the CD, you would need to delete the MP3s to stay legal, since if you do not have the official original version you are not allowed to have the copies. There is no scale.

As should be clear, there is a huge amount of ambiguity in the law that does not make sense. Not to mention that only a handful of individuals are ever targeted, to be made examples of, which makes the laws that do exist unfair in their application.
Actually, there is very little ambiguity. You are only allowed to have copies of the songs (in any format) if you have an officially purchased version to start with.