Well, I'd be with you if the government was poking around on the users' computers, but they weren't. The users were hosting the files on a public peer-to-peer network where you essentially advertise to the world you've downloaded the file and are making it available to the world. Since both those acts are illegal, you don't really have an expectation of privacy once you've told *everyone* you've done it. While the broadcasting of the file's availability doesn't prove you have criminal intent, it's certainly probable cause for further investigation.
These guys got off on a narrow technicality. Of course technicalities do matter; a government that isn't restrained by laws is inherently despotic. The agents simply misunderstood the law; they weren't violating anyone's privacy.