Unlike that other touch decision of how much time we allow our children to spend on places like MSN/Facebook & Bebo etc the "downloading illegal content" question shouldn`t be such a difficult one i dont believe.
The bottom line is that pilfering the kinds of stuff we`re talking about is illegal and if you as the parent dont want your 12Yr olds breaking the law then it`s up to you to make them see sense.If that eventually means taking the computer off them then so be it.
Education & trust are far better weapons of course