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Preventing MS from monitoring usage in Service Pack 4

I currently use Windows 2000 Pro, Service Pack 3. I want to install Service Pack 4 or Upgrade to XP Pro. I was told that in Service Pack 4 and XP, Microsoft has included code that somehow registers and monitors my computer for purpose of, I assume amongst other things, to better control licensees usage of their product. I find this very invasive. Is this true? If so, is there a way to circumvent this intrusive problem? Like turning it off? Using a router with a firewall or a software firewall?
Microsoft included an error reporting feature in Windows 2000 SP4 and Windows XP that sends bug reports to Microsoft in the event of a crash or error. These error reports are compiled into a database that is used to identify and prioritize bugs. You can elect not to send the data, and you can view what data is being sent before you send it. No personal data is sent in the error report, just the error. In addition, Windows XP and Windows 2003 Server include a product activation feature that is required as part of setup. This process is design to thwart software piracy and limit casual copying of the operating system. Again, this process doesn't transmit personal information, it simply accesses an online database and assigns a unique activation code for your PC based on your CD key and hardware.

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