Well, I'd like to add my 2 cents (I know a lot about privacy, or think I do). To hide your IP address from other users go to the options menu. Under the Firewall tab, configure your copy of Kazaa Lite or K++ to use a privacy SOCKS5 proxy. This will hide your true IP from the downloader. Beware however, it will slow down your transfers.
If you are truly paranoid (after reading the articles, I'm sure more of you are), you could switch over to Filetopia (http://www.filetopia.com). This uses strong encryption to hide your activities from even your own ISP! Make sure you configure Filetopia to use a SOCKS or HTTP proxy, and switch the encryption algorithm from Rijndael to 256-Bit Twofish or 448-Bit Blowfish (I don't fully trust Rijndael). That way your IP will be hidden from the RIAA/MPAA, and your activities will be hidden from your own ISP!
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