Just backing calistoy up here.
The TOS is your warning - just like when you sign an agreement to a credit card that says "We will charge you a late fee if payments aren't made by the payment due date," they don't send warnings to tell you that you're close to being overdue (or at least none of my 6 do), you agreed to the TOS that said we don't allow content in violation of any federal, state, or local laws. You didn't have the redistribution rights to the XP Gigabook, thus you were in violation of all 3 since it's against federal laws to redistribute content that isn't yours, and same with state/local (it constitutes transmission of stolen property).