Microsoft's now planning to make Windows Vista and Office downloadable via their website - a good choice, likely spurred on by the vast number of other software distributable via the internet.

It's a good idea, but I think that it's quite probably piracy will become even worse if it's distributed with Internet. When a hard copy is sold, it's inevitable that many users will lose their product key. If they decide they're going to do a little cheaating, and share it with friends, they can't - unless they find that product key. If it's downloadable, the key is probably stored somewhere: perhaps in the "old archives" section of your email, or maye you copied it to a file on your hard drive. In any case, it'll be much easier to copy it if users download it. Not to say there's any copy-protection on these CDs other than product key validation, but that actually stops quite a few.

What's next? There'll likely be increased Vista usage because of this move. If you don't believe me, imagine what would have happened if iTuens store would have been a real store instead of a virtual store. Another few things I can see coming: Microsoft offering all (or nearly all) of their products via internet. Hey, lazy computer users don't want to have to go to the store; they'd be much more comfortable using the internet to get the latest version of Microsoft Publisher than to drive to the computer store.

Also, selling Vista with Internet could give Microsoft an edge over Apple's Leopard in the next-gen OS war. If it's successful in this regards, don't be surprised if Apple follows suit.

Nothing to prevent the same anti-piracy systems from being used on a downloadable version that are on the hardcopy version.
The key is in fact far more easy to personalise to the purchaser, making pirated keys that much easier to track down (as it is they can be traced at best to a single store which may have sold hundreds of copies, but more likely to a large chain which can sell tens of thousands nationwide).

Embed an encrypted string indicating the actual buyer into the key, and keep record of which key is issued to which individual, and you can find any pirated key being used for product activation easily and bring the person who originally spread it to justice.
Send the actual key back during product activation to do that, and you're good to go.

It also prevents key generators from working as the keys generated by them would not have been sold and therefore no record of their existence is available to the activation servers, which will just reject the activation attempt.

And as there's no more sneaking into stores and copying the keys from the backs of boxes (which used to be done quite a lot until manufacters and some stores wizened up and put them inside the box and the box in shrinkwrap that can't be opened and closed without leaving traces) that avenue of stealing keys is also blocked.

Distribution will get cheaper (cutting out the middle man, no more transportation and duplication cost, of course an increase in hardware and bandwidth requirements for your download servers) it may even be cheaper for Microsoft to publish it as a download and let customers burn their own installation media.