With services available like the Pirate Bay, an artist might have millions of fans enjoying his music but there will be no way for him to capitalize on it. The only way I can see to monetize bit torrent for artists are very indirect and way out of proportion to the enjoyment they create, akin to putting google ads on a popular website. Examples include using recorded music as an advertisement for big, expensive concerts and begging people to donate after they already have your music for free.
>"The argument that a pirated copy equals a lost sale is total bunk. I would have bought maybe 1% of what I've downloaded."
How much of that did you actually buy? For many people it is 0%.
Money has flowed out of music lately. The industry as a whole is shrinking. Downloaders sometimes say it is because "music isn't as good as it used to be". The music industry blames it on easy free downloads. I am more inclined to believe the latter. There is still lots of great music out there.
That said, I don't think there is any way to stop what is happening, and it is incumbent on artists that want to survive to deal with it as best they can. Unfortunately, that might mean going back to that day job at Starbucks for most of them.