Few people love Microsoft at the best of times, but its new operating system, Windows XP, has caused a furore even before the final release.

The disgruntlement stems from Microsoft's controversial decision to require "activation" of the home upgrade version of Windows XP. Although activation was first implemented in Office XP, this is the first time it has been applied to an operating system.

Activation is a process that locks the software to a specific computer, making piracy difficult or even - Microsoft hopes - impossible.

The move comes as Microsoft finally cracks down on the long-established but illegal practice of "sharing" licensed software, either by simply passing on the CD-Rom or by copying it.

Julia Phillpot, Microsoft's anti-piracy manager in the UK, says the company loses "a huge amount of revenue" through such practices. And while users might take a benign view of lending a colleague your copy of Windows XP, or installing it on your child's computer, Ms Phillpot does not.

"Would that person walk into a store and shoplift the software? It's the same thing," she says, adding that while 86 per cent of small businesses use some version of Microsoft's Office suite, "only 16 per cent of those pay for it".

The point is one that many forget. When you buy a box of software, what you have is a licence to install the software, not the program itself. That usually means you can put it on just one computer, not your machine at work and your laptop - or your kids'.

In most software, there is nothing to stop you doing that. However, Windows XP contains code that does.

When you first install the new OS, it will record your hardware set-up, and then invite you to activate it, which, according to Microsoft, is a simple procedure.

The activation code that Microsoft gives you "unlocks" the software to that particular hardware configuration. If you do not activate it within 30 days, you will be able to boot the computer 50 times before you are locked out. Once you have your activation code, the software will work only with your computer.

In theory, this creates no problems for the honest user. Difficulties may arise, however, if you start tinkering with your hardware. Too many changes, and you will have to call Microsoft and convince the person on the end of the phone that it is the same computer.

Reactions to this have been angry. The online discussion boards of websites such as PC Advisor, a UK computer magazine, buzz with outrage. "I am totally opposed to having to reactivate if changes are made to my computer, no matter how lightly the policy is applied. The principle is utterly wrong," says one contribution.

Ms Phillpot says such fears are unfounded, pointing out that few people make substantial enough changes to their hardware to trigger reactivation.

Many users have concerns about privacy, saying they are unwilling to tell Microsoft every time they update their hardware. However, Ms Phillpot says that Microsoft takes no information during the activation process.

Michael Silver, an analyst with Gartner Consulting, says privacy concerns are now largely misplaced - in earlier beta versions, however, activation was more closely linked with registering the software. The latter is voluntary: it simply places you on a database for support and notification of upgrades and fixes.

Some users believe that Microsoft has missed a marketing opportunity with activation. Although businesses can buy multi-user licences and not have to grapple with activation, one message on the PC Advisor discussion site remarks that Microsoft could have avoided requiring home users to shell out twice for the OS by devising a home multi-user licence.

Others think Microsoft is using a hammer to crack a nut. Apparently, the activation process in at least one beta version has been cracked, and is allegedly "widely available for a couple of pounds per CD in Asia, as is Office XP". Some think it is this kind of large-scale piracy that Microsoft should be concerned about, not the small-scale domestic variety.

Yet the move is driven by business concerns as much as by ethics. Ms Phillpot says: "We lose billions through piracy." Adds Mr Silver: "Why shouldn't Microsoft protect its intellectual property? As a company it has a duty to maximise returns to shareholders."

It is hard to disagree with that. But as one contributor to the PC Advisor discussion notes, the potential for alienating small and honest users is real. "Microsoft's judgment is very much in question. The market's reaction will cause a rethink, but the damage is done. It takes years to win customers, but only seconds to lose them."