Forced validation of Windows with every update

From now on, every time you update your computer using automatic updates, Windows Update or Microsoft Update you will be forced to validate whether your copy of Windows is genuine or not. I thought it was a one time activity that Microsoft is doing to verify whether I am using a non-pirated copy of Windows. But it seems that every time I update my computer, I will be forced to validate my copy of Windows.

I noticed this first time when I updated my computer to download and install IE7.0 and didn't think much of it that time. Last month Microsoft released an update to Windows Media player by releasing Windows Media Player 11. I tried to download it today and after the download it showed me the screen showed here to validate my copy of Windows XP. I downloaded and installed IE7.0 quite recently and at that time also it asked me to validate the copy of Windows.

I am using a enterprise volume license for Windows XP and Microsoft software. So why does this bug me? For the simple reason that I don't know what information Microsoft is collecting while doing this. Granted that their privacy policy states that no identifiable information is collected, but the fact remains that they have the capability to collect this information. What if they discover that the copy of Windows key that I am using is compromised and they unilaterally decide to inform the law enforcement agencies. What then?