In the former, the record company may have been deprived of some of the money you would have spent if you had actually bought the music legally (whether a CD in Wal-Mart or iTunes, etc.).

Actually, this is an interesting matter. If hypothetically you always bought physical CDs and never used iTunes, then given that large stores buying lots of CDs has some overflow (e.g. Wal-Mart can't know exactly how many people will buy some album, and so will end up with extras in stock) then you could argue that if you were to instead download an album for free, you actually weren't depriving the record company of any money (since all you've done is cause one more album to sit on Wal-Mart's shelves rather than leave Wal-Mart's shelves, and Wal-Mart has already paid Warner when it bought the CDs in bulk). However, in that case you're depriving Wal-Mart of money (by not buying the CD, and by causing it to sit on a shelf, which apparently costs some money), though it would be tough to argue that that money is rightfully Wal-Mart's. Nevertheless, you have clearly violated copyright.

On the other hand, if you always bought music on iTunes, then in this case since your money goes to Apple and then royalties from that automatically go to the record companies (full disclosure: I do not have certainty that this is how it actually works, but this is how I think it works), then you are in fact depriving the record company of money it should rightfully get.

Yes, but Warner owns the right to copy the music (fair use excepted). By copying the music herself, Jammie deprived Warner of its rights, as well as money which is rightfully Warner's. The fact that Warner is a large corporation and probably has "way too much money" and probably Does Evil does not legitimize doing wrong against it.

I agree, the damages in both cases should be comparable, and the solution is not increasing the damages from a theft of a physical CD.

No, he's not. He said:

not,

The first raises the question, the second makes a blanket statement. Whether the question is valid or not is up for debate, but it is not like in this article Eric Schmidt has said he's going to start taking steps to curb users' privacy beyond complying with legal requirements, nor has he said that privacy is immoral.

But what decides where the line is? If this theory is true, why didn't we get hung up before the discovery of the electron?