In this most recent lawsuit, the parties allege Microsoft violated the Computer Fraud and Abuse Act, the Consumer Protection Act, the Computer Spyware Act, and also engaged in intentional misrepresentation of the software program.
While Microsoft has changed the way WGA is distributed recently and even changed its nature to be much more friendly, many people still see it as too intrusive. Could Microsoft have done things in a better way? Probably, especially considering that the web-based Windows update service already has a separate branch of WGA built into it. We probably haven't seen the end of the backlash from this, and it'll be interesting to see what the courts have to say about how far Microsoft can peek into your system.