I agree completely.
Step 1: CYA
From there, educate yourself and others on free alternatives if cost is a factor. If it's a small enough company, you should have no problem going to the owner or manager or whoever the head person is and explaining the repricussions of getting caught pirating software. It often leads to loosing the company. However, make sure not to be threatening. You don't want to imply blackmail here.
I ran into a similar situation at my old job. The company had about 50 people and I was the head IT guy. I was sometimes even instructed (usually by sales-folk) to install software that I knew was illegal. I refused every time and stated my reasons. It didn't make me the most popular IT guy, and I know that there was at least one other that would install the illegal software, but it at least kept my conscience clear and my ass covered.
I think the biggest thing is to find free alternatives if possible. If not, make your displeasure well known. If instructed to break the law.... well, that's up to you but I'd probably start looking for another job if my current employer knowingly told me to break the law.