I don't think it worked out so well for Michael Jackson... may he R.I.P.

Assuming you did nothing wrong while using last.fm, i.e you legally own the music you listen to. You could just represent yourself, since basically, it is obvious they have no proof of you doing something illegal if in fact you didn't do anything illegal. Like you said, if it looks like you might win they will drop the case. They do this enough times and it costs them a bunch of money to start the process. This is only useful for them to catch actual criminals, i.e. people who listen to music they downloaded illegally (oh the horror!!!), though I suspect (for the most part) they are really only concerned with people uploading music illegally.

And that gets back to the original comment's question, how will this work as proof of anything? If they already know you were sharing a copy of an album, say before it was released and could also prove that you listened to the song from your computer before the album was released... I could see that helping their case, though they would probably need more evidence.

I think you are describing cable television, and the answer is yes, they now make more money.