Mmmh, I'm not entirely convinced. Yes, my collection is also 99.999% legit, save for the odd copy of something bloody hard to find that I got from a friend.
My personal experience on the iZune thing, however, is that a lot of them are bought by young people, who, almost per definition, often don't have the money to buy a lot of the argumentably too expensive on-media music. That drove them to learn how to get the music they want for cheap, and because the industry has been too stupid to swiftly hop on to the digital bandwagon, 'for cheap' became 'downloaded from the internet for free'.
A very convenient habit, and one very hard to break even now that the music industry have started to realise that there is something to this whole intarweb thing after all.
Yes, us older types with a good income and a lot of appreciation for the bands we choose to listen to will buy the stuff, often on physical media.
However, add to the above circumstances the fact that music has become not so much of an art as another mass-produed consumer item to be rammed down the shee-err, valued customers' collective throat, and what incentive is there to pay good money for something that you'll never listen to again in three weeks, when the newest fad buys airtime ?
Again, the above is based on personal experience, but I have a feeling that the share of illegal copies on the world's music players, while spectacularly less than what the MAFIAA wants us to believe, is still a lot more than you seem to think.