AV sez, "This week, Microsoft started requiring users to verifiy their serial number before using Windows Update. This effort to force users to either buy XP or tell them where you got the illegal copy is called 'Genuine Advantage.' It was cracked within 24 hours."
We can't show you how it work's but several sites are already displaying this workaround, links below.
Update: Links removed at the request of our readership. Neowin has contacted Microsoft who is now aware of these workarounds shortly after posting, they assured me the appropriate division would be notified.
Oh and here are 2 more ways to get around it:
Disable in IE7 Beta | Patch Windows; Thanks Ryan. Post @ Boing Boing or The Inquirer