I do not think downloading music is hurting the RIAA.
I think consumers, once the industry starts making product they want to buy, will still buy even though they can download it.
Why?
Water is free, but a lot of us drink bottled water because it tastes better.
You can get coffee at the office, but you're likely to go to Starbucks or the local espresso place, because it tastes better. When record companies start making CD's that offer consumers a reason to buy them, we will buy them.
The songs may be free on line, but the CD's will taste better.

So why are the record labels taking such a hard line? My guess is that it's all about protecting their internet-challenged business. Their profit comes from blockbuster artists. If the industry moved to a more varied ecology, independent labels and artists would thrive.
There are, as I see it, two operative issues that explain the entertainment industry's heavy-handed response to the concept of downloading music from the Internet:
1. Control. The music industry is no different from any other huge corporation, be it Mobil Oil or the Catholic church. When faced with a new technology or a new product that will revolutionize their business, their response is predictable:
a. Destroy it. And if they cannot,
b. Control it. And if they cannot,
c. Control the consumer who wishes to use it, and the legislators and laws that are supposed to protect that consumer.
This is not unique to the entertainment industry. This mind-set is part of the fabric of our daily lives. Movie companies sued over VCR manufacturing and blank video sales, with Jack Valenti (Motion Picture Association of America chairman) testifying to Congress that the VCR is to the movie industry what the Boston Strangler is to a woman alone at night - and yet, video sales now account for more industry profit than movies themselves.
2. Ennui. The industry is still operating under laws and concepts developed during the 1930's and 1940's, before cassettes, before boom boxes, before MP3 and file-sharing and the Internet. It's far easier to insist that all new technologies be judged under old laws, than to craft new laws that embrace all existing technologies. It's much easier to find a scapegoat, than to examine your own practices.

I read a report recently showing that in the heyday of Napster, if record companies had agreed to charge just a nickel a download, they would have been splitting $500,000 a day.

Our representatives are not in Congress or the Senate because they want to make a better living. They're there because they want power, and influence. Without the office, they have neither.
If they believe their actions will cause large amounts of the population to vote against them, no amount of money will be sufficient to buy their cooperation. If you let your representatives know, en masse, that you will not vote for them if they support ridiculous measures such as the bill allowing media companies to spread viruses on the computer of anyone "suspected" of file-sharing, and if enough of you tell them so, they will NOT work hand in glove with the RIAA.
We cannot possibly match the monies the record companies can devote to litigation, but we CAN threaten to vote those representatives who are in bed with them out of office. And ultimately, it's the votes they care about.