You're absolutely right on the money here. I've been living in China for 6 years now. My job back home was for some time in PC repair and later server admin so when I got here people naturally asked me to fix their PC's. When I encounter a freshly installed XP box here I run my AV on it instantly before connecting to the web because the pirated XP comes with malware and backdoors pre installed. The People making the pirated disks are getting thousands of ready to use zombie machines that they can then use to hack into your bank and servers back in the USA or send you all that spam that fills you inbox.
When my girlfriend inherited my old laptop last year, she wanted the Chinese language version of windows on it. She first went and got XP. After a few months it croaked and died so I wiped it and went to the shop with her to get a new install. The guy in the shop wanted to put on XP again. I insisted on win7. He said the laptop was too old and slow for win7 and it wouldn't work as well as XP. I told him I had used win7 on that laptop, in English, since the first beta and that win7 was faster than XP even on old systems and so on and so on. He didn't believe me but eventually installed win7 - which he clearly had never used before. When I looked at it, he had installed a hacked version of win7 beta - not the full version.
China is still 5 or more years behind us in many aspects of computing. It is a compulsory part of every university student to learn some basic computing skills. They are taught MS World/Excel, Dreamweaver, Flash and Visual Basic. The students find it boring and generally hate the class. There's no impetus to advance. They just want there computers to remain in 2001 status.