Originally Posted by
Jagick
Basically for westerners, if it's not -actively- hurting anyone, it's okay regardless of what the rules say. In the west, a ToS agreement won't even hold up in one of our courts of law in most cases. This sort of thing have been going on for years whether it's bards playing copyrighted music or modders using lewd mods in countries with heavy censorship. At least in America, a company cannot be held legally responsible for what a customer does with their product.
To this end I refer to two other games: City of Heroes and Archeage. Archeage in particular is another game with playable instruments and custom sheet music to make and play any songs you want, including copyrighted music. This has been going on for years, very openly, with no issues. I don't know if it's different in Japan but in the USA it's not much different than someone uploading a video on Youtube of them "covering" the song with their own instrument, it's fine.
In terms of City of Heroes, NCSoft was actively sued in court by Marvel over potential trademark and copyright concerning iconic comic book characters. The courts dismissed almost ALL of Marvel's claims and in the end the two parties just settled out of court.
It may also sound pretty crass but it honestly just boils down to something far more simple and I don't say this to be mean. Why are there so many "copyright violators" and rule breakers? Because they want to. That's just all there is to it.