This is fairly well known news but I just came across a link describing the loophole in detail. It describes how to install Windows Vista from scratch using a Windows Vista upgrade DVD which costs hundreds of dllars less than the full version. I'm not a lawyer, and I'm not a Windows user but it's probably not legal to do this unless you have a valid copy of Windows XP or Windows 2000 (something all of us should have with any PC we purchased in the last 5-7 years.
I find it interesting that Microsoft isn't acting against this hack in any way. Probably because they would rather sell upgrades than no copies of Vista at all.