You don't seem to realise that I and just about everyone couldn't give a shift what Microsoft know about me. Why worry? What's the worst that could happen? They block anything illegal I am doing, big deal. That's the law
I agree. I mean, people never enter any personal details into their computer, right? If they did, doing business with Microsoft would a bit like hauling out your credit card number, banking details, phone number, email address, driver licence number, personal finances and records of every website you've visited, email and IM you've ever sent, both business and personal, to be able to buy a burger from McDonald's. Fortunately for Windows users, none of them ever put information like that on their computers, so they don't need to worry about it being snooped.
Sarcasm aside, Microsoft is not the police. It's not their position to enforce the law, nor do you have any reason to trust them to. What's more, the law for Microsoft is not the same as the law for you, being in different countries. What you're saying is comparable to "why worry about this guy who follows me around everywhere with a knife? What's the worst that could happen? He'll just stop me doing anything illegal."
Yeah, a hardware firewall wont stop all of that from happening. You need a decent host based firewall, I recommend installing a 3rd party firewall and disabling the windows firewall.
Or you could run an operating system that's not built like Swiss Cheese instead of trying to patch up all the holes.