The courts do not care how the copy was made, they care about what markets the copying would allow someone to get into. "Cloud DVRs are OK but only if the kernel, filesystem, and hardware take great pains to ensure separate physical storage locations for and no compression on each customer-created copy" is absurd and no judge is going to go for that.
No, the courts aren't saying "if you waste a bunch of money on extra hard drives, you can infringe copyright", either. Their concern is providing a demarcation line between "things the customer has done with your service" and "things your service provides on it's own". Yes, this line is going to be fuzzy, but it's fuzziness has nothing to do with how the bits are stored. It has to do with the context of the markets in which works are ordinarily sold.
>I originally thought the strangeness of digital copyright outcomes reflected a lack of technical literacy in the courts. But for the most part, I find the Aereo discussion shows general digital competency, and an appropriate aesthetic disgust for the “identical bits are different” problem.
Remember how after the Napster lawsuit, everyone was parroting the thought-terminating cliche "the law needs to catch up to technology"? Yeah... no. In reality the law is almost always three steps ahead of technology, because the law is written in a programming language that executes what you intended to write, not what you actually wrote.