Well...#2 is legal, #1 is not. I guess I don't understand why everyone is trying to look for loop holes and justification.
If you want a hard copy buy the CD...if you only want a digital copy buy the download. Seems pretty simple to me. When it is ambient music or something I consider that sound quality is worth it, I buy the CD. If it was something like say the new U2 or Depeche Mode album, I BUY the 256k files from Amazon or iTunes.
Paul
This is gonna be one of those crazy posts... if you hate math, you're gonna hate this for looking complex and boring. If you're a mathmetician, you're also going to hate this because it's gotta be flawed somehow

enjoy

Just read the bottom little paragraph if nothing else.
You already mentioned that it's okay to question a law in a democratic society, and looking at the consequences of breaking the law is one way of doing that. Where is the harm being done of breaking this law? Who can benefit from breaking the law? Can they be compared in any way? Those are some of the scenarios that being touched upon.
There are other musicians here who seem to have a more nuianced opinion than just "the law is the law and it should never be broken unless it's life or death". Some have conceded that if it doesn't harm the musician, as in affect their sales of music, or "doesn't hurt the scene", it's okay, and the intent of the law is not betrayed.
I'm still not sure if ripping a cd and selling it is harmful. There seems to be so many unknowns and variables that it's hard to assume one way or the other that it's good or bad.
To make a really simple math equation- this is going to be difficult for me, but simple in terms of trying to solve the bigger problem, please bear with... Let's say I as Citizen 1 have 90 dollars to buy cd's, and I decide to buy new cd's, rip them, then sell them. For simplicity, let's say each new cd costs 12 dollars, and every time I re-sell, I gain 6 dollars back - sometimes it really would be more, or less, but probably more. In this case I also reinvest the 6 dollars back into new cd's- I had 90 dollars to start with, and any money from sales go back to buying new music.
On this model, I can buy 14 new cd's, until I run out of money. Now let's say I follow the law and don't rip the cd's, and therefore I don't sell them (because if I can't rip and sell, I have to hold on to the cd in order to archive). If I only buy new, without recoupping money, then I can only buy 7 new cd's with my budget.
Okay now to citizen 2, who has bought some of my used cd's. Let's say citizen 2 likes bargains, and has a smaller budget, so every other cd he buys is a new, then a used, and so on. His budget is only 60 dollars (this is over a period of time most likely- I'm not sure that part matters right now). In the buy-rip-then resell model, citizen 2 resells both the new cd's and used he bought, recovers 6 dollars for the new, and 4 dollars for the used, so he gets 6 dollars back on his 12 dollars, and only 2 dollars back for the used. Based on this he's able to buy a total of 7 new cd's (and 6 used). If he didn't rip and consequently didn't re-sell, his budget would allow him to buy 5 new cd's.
As you can see the 2nd tier was a much lesser margin of new cd's bought, and the "further down you get", the situation maybe reverses itself, so that following the law generates more new cd's? I can't really fathom that part.
Basically the bottom line is this: if you follow the law, your budget can afford less new cd's, but there's less used cd's in the market, which encourages a higher percentage of new cd purchases. However, breaking the law by ripping a newly bought cd and reselling it generates money to buy more and more new cd's, but also fills the market with more used cd's. Which is worse if any?