This is perfectly legal, from what I've heard, as long as the songs are deleted within 24 hours. They say that if music prices were reasonable or they could just buy a certain song at a reasonable price, they would. Napster claims that it is not doing anything illegal. No files are actually stored on Napster's servers. Instead, a database of users and the files they have for sharing are kept.
Members search the database and then a connection is made between the two users.
Napster has a warning to not download any copyrighted works without the owner's permission. They claim they do not infringe copyright, nor do they encourage it. The recording industry disagrees. The recording industry claims that Napster is mostly used by pirates and should be shut down or at least made to purge their database of the songs that are not allowed to be distributed. They also cite that they have lost lots of money due to MP3 trading.