Overcharging customers can lead to a backlash. It would be an impulse purchase, like a magazine or a candy bar. Because the industry charges more than people think the product should sell for, people look for an alternative. Companies set prices, but customers decide what the price should be. People will break laws if they know they will never be caught, or if they are unaware of laws.
Security is overlooked if the value proposition is high enough.
But at the core of Napster's service is the ability for Napster to peek into you hard disk and retrieve music from your disk and send it to others who request it. But it doesn't. Because people trust Napster and its community of users. That's a phenomenal statement given the potential abuses this security violation could cause. People and companies spend millions of dollars a year to prevent people from peeking into their computers, but Napster's community gives this right away freely.