I don't think the compensation argument is a good one. First of all its wielded as if work somehow is valuable in it self and thus warrants "compensation". Which cannot be true, there are many things not worth doing, and even some things better not done at all. In reality though not even copyright ensures any work is compensated. Which, even further makes the connection between copyright and creative work incentives weak.
As others in this thread has pointed out, there are other motivations than monetary. So it's not even given that "compensation" is needed at all (whatever we mean by "needed")
But even if we deem compensation required, what is to say that a free market would fail to provide compensation? As a developer most of the code I produce is paid for buy clients with no specific dependency on copyright. What makes other creative industries different?
So not only do I question your #2, even #1 is suspect in my mind. I don't believe copyright in general is a good thing, and in my mind the burden of proof that it is lies on those promoting it.