"What you (and most others here) seem to have missed is that Dropbox generally has absolutely no idea what your content is. Everything is encrypted. How exactly are they distributing your "copyrighted material" when it can't be decrypted?"
Except it *CAN* be decrypted. Dropbox has already admitted that THEY have the encryption keys and they can decrypt (and turn over to the gov't if necessary) your data. If they can decrypt it then they can read it. And that means, according to their terms of service, that they can "use, copy, distribute, prepare derivative works (such as translations or format conversions) of, perform, or publicly display" your data.
The bottom line is simple: By agreeing to their terms of service you are giving them permission to do those things to your data. You can argue all day that they WON'T, but you're effectively signing agreement that says they CAN.
http://www.rolandschorr.com/blogs/index.php/oh-dropbox-we-loved-you?blog=6