The survey found that at least three out of four people know what is legal and illegal in relation to their music use, but at least half don't think the music industry does enough to persuade them that illegal downloading is damaging.
Tiscali surveyed 1,000 of its music channel users for the survey and also polled readers of music magazine .
The study found that the most rabid music fans -- those spending the most through traditional means such as CD sales and gig tickets, were also more likely to download music illegally, with full knowledge of its unlawfulness.
Punitive measures rate low as a deterrent as only 6% fear a fine, 2% fear that their ISP will monitor them and only 3% are worried that their ISP will cut them off.
The main deterrent to download illegally is a lack of knowledge, said the study, which Neal McCleave, managing director of media services at Tiscali, said should cue the music industry to change their thinking about the pursuit of illegal downloaders.
McCleave said: "It is clear that the music industry particularly has to be more creative and even radical in their thinking.
"The dam is already broken and they could instead look at ways of turning this 'torrent' in their favour."
There is good news, the majority of respondents (83%) said that they still pay for music in some form, whether on CD, on vinyl or as digital, with nearly three-quarters spending £10 or more a month.
McCleave said, the fact that illegal downloaders are also spending money on CDs or gigs present a "conundrum" for the music industry, "The research shows that music fans have a far from simple relationship with music and many see illegal downloading as either a way to explore new music they would never buy or as a way to try before they buy.
"There is clearly a distinct trend for people 'topping up' their paid music collection through free downloads.
"Only a hard core of about 15% said they wouldn't stop and they downloaded illegally because they didn't want to pay.
"This doesn't have to be all negative news for the music industry -- in fact, if people are not able to access tracks for free, it may well prevent them from discovering new music in the future."
Sean Adams, founder and editor of Drowned in Sound, highlighted the success of new music player Spotify, which offers music in exchange for a recorded advertisement for every hour of streamed content, which could be used as a compelling alternative to P2P in order to up-sell legal digital products.