Sorry for my sarcastic remarks earlier - I could have been nicer.
I guess my point is that the EULA really only half-matters what it says. While I agree with you if you're reading the EULA as law to the letter and everything else is illegal, then what this hack does is probably illegal. But then again, if you do that, then practically anything you do within Windows is illegal. This hack is really not much different at all than installing LiteStep as an alternative shell. You're essentially circumventing a technical limitation that the default windows shell doesn't support multiple virtual desktops and many other things. You replace a few system files, change some config files, copy the LiteStep files to your system, then voila, you have additional functionality! Is this illegal? Depends on if you follow the EULA to the letter. If you do, then it is illegal, most likely. The kinds of changes that it takes to install litestep aren't much different at all than the changes it takes to do this hack.
Anyways, we can argue EULAs all day - I take them with a grain of salt. Grant it, that doesn't mean I'm an advocate of piracy or anything like that - I already have 4 Vista licenses (3 home premium and 1 ultimate), most of which are retail so I can legally transfer them around from machine to machine over time. I have who knows how many XP licenses. It's just the nitty gritty details of the EULA really don't matter to me or to Microsoft. I paid for the software, I'm not screwing Microsoft in any way (exploiting their software and selling it or anything like that), etc. Do you really think they're going to care about me remoting into my own pc after paying for the license? I doubt it.