As a legal strategist your job would be to cut your opponent off from as many loopholes as possible. That is exactly what the RIAA is doing.
Now look at the RIAA’s position from a legal strategy point of view. The file sharing angle is full of loopholes by definition. Can Kazaa be used legally, if so does that mean illegal traders can’t be prosecuted, etc… So what they need to do is to find a way to pull back and make the acts leading to that trading illegal which cuts off their opponent’s access to all those loopholes.

Hence arguing that copying the music in the first place is illegal which cuts the other side off from making any arguments that would excuse the file sharing. By saying that they make the case against the file sharer iron clad which is what from a legal perspective they want. So they ARE saying that legally-bought copying is illegal but not to prosecute people who aren’t illegally trading them.

It isn’t about “giving in” it’s about legal strategy and while I might not like that the world has come to this there’s no doubt that the music industry has been forced into this position by society. If people would just accept that sharing music is stealing the record companies wouldn’t have to take these measures to make sure they can prove it in a court of law. I certainly don't think it makes them weasels because they listened to their lawyers who said this was the only way to protect their legal interests.