@odin-
Well, I've been running Win98 with a key which came from god knows where for ages. And using WinUpdate, so far no M$ secret agents bashing down my door.
I haven't heard of anyone getting in trouble for any of this stuff, yet. I think M$ just likes to keep a pulse on what's going on, though. It's much more likely that they are just looking to find out how much "piracy" they can try to stop before users revolt over too much spyware.
@Cecilia-
Sounds like you have things under control. :-)
Zone Alarm is a very good piece of software, and it's caught several programs on various machines I use trying to "phone home" when they shouldn't... I'm not always convinced, of course, it'll stop the OS, itself, though, as since Microsoft wrote the API's, they surely know how to write something that hides itself from them.
While you may not have ever turned on auto update junk, Windows 2000 service pack 3, and all versions of XP automatically enable it. (In other words, if you had it disabled on Win2k, and then installed the SP3, you now have to go back and disable it, again.) I wasn't thrilled by that cute little fact when I was configuring servers. It's a pain, and I really dislike Microsoft thinking they know more about my security than I do.
As for winmodems, just say 'no'! ;-)