But this kind of raises an interesting question. When a company operates accross many countries, which country's law do they uphold?
The thing here is that it depends on the customer's country laws ! Some country laws will tell you that you're subject to the laws of the country of the company you're buying to; some other country laws will force you to comply to their regulation to be able to sell your products.
As an example I would take the case of a web contest that would be held on a UK web site might be forbidden in France because they do not have the same laws. I saw it with one of my client who had web sites all over Europe: the contest was ok for all countries except for France ... and modifying the rules would have allowed the contest to enter France but would have blocked it in other countries.

That's where the nightmare is: every state will tell you "Obey the Law !" but if you obey to the law in a country you will violate the law in another, or violate the laws of equality of the market in Europe.

This said, I don't think that the main motivation for Apple to keep "their" songs secure is the reduction of iPod sales. I would consider the ITMS as an addition to the iPod accessories and certainly not the opposite. iPod was there long before the ITMS and the success was already huge.