Windows XP SP1 EULA Question

The following is a direct blockquote from Windows XP SP1 EULA:

* Solely for the purpose of preventing unlicensed use of the
applicable OS Software, the OS Components will include
installation on your computer of technological measures that
are designed to prevent unlicensed use, and Microsoft may
use this technology to confirm that you have a licensed copy
of the OS Software. The update of these technological
measures only occurs through the installation of these OS
Components. The OS Components will not install on
unlicensed copies of the OS Software. If you are not using
a licensed copy of the OS Software, you are not allowed to
install the OS Components or future OS Software updates.
Microsoft will not collect any personally identifiable
information from your computer during this process.

Can anyone elaborate on exactly what this means?
 
I am about to purchase Windows XP from my school for a very small price but I don't know still if I want to install SP1 because I don't like the idea of microsoft retrieving information from me. I think it violates privacy. Anyone know exactly how this works or in what ways it retrieves this information?
 
Top