Microsoft sleuths have cruised markets across Melbourne and busted four alleged pirates flogging DVDs loaded with bootleg Windows and Office software.
The software giant has launched "enforcement action" against the hawkers.
Of the 12 DVDs purchased, half failed to run. The remainder had Windows Updates disabled and firewall settings modified.
Microsoft said 20 instances of malware were found, but it was unknown if these related to cracking and patching tools which are flagged by default as malicious by most anti-virus products.
Some of the software appeared to be burnt copies of popular pirate torrents. One such torrent of Windows 8 saw users and crackers battle with Microsoft as it blocked registration codes and tactics to mitigate the activation process.
Thousands had downloaded the installation and were using either a phone activation method or an executable file to modify the Windows installation to avoid Microsoft's anti-piracy measures.
Microsoft Australia warned that pirate software could contain backdoors or malware designed to siphon user data.
"The risks posed to consumers if they had installed these counterfeit disks include loss of sensitive data, substantial financial losses and costs, and a big waste of time trying to fix system problems," it said in a blog.
It cited a 2013 IDC study which claimed more than three-quarters of pirate software installed "tracking cookies or spyware".