Researchers in Carnegie Mellon University, in a study sponsored by Microsoft and Intel have concluded that downloading MP3s from the internet has a considerably reduced carbon footprint over traditional approaches of music distribution. They considered purchasing CDs from stores, ordering music CDs online, after which they are delivered to homes, downloading files before burning them on CDs and just using the downloaded files and playing them on computers and PMPs without burning them on CDs. The cost of packaging, transportation, commutation and energy taken up to listen to the music were all factored in. While the study does not explicitly state that downloading illegal MP3s is more environmentally friendly than purchasing CDs from a retail outlet, it is a pretty safe assumption to make.
There are some other interesting conclusions of the study though. If you start feeling guilty about purchasing music from retail outlets because of the harm it causes to mother nature, you can compensate by walking to the retail store instead of driving. This puts the footprints of downloads and purchases at par. The original research paper can be downloaded at http://snipurl.com/qtsji.