In your reply, no 3, you say..

I have now checked and I find that I used an ISO file I had burned to disk--X17-58997 from Microsoft to install Win 7 SP1.
That downloaded .iso is a complete version of Windows, not just SP1 by the way. Perhaps this is where the confusion is coming from.

So you do have a Windows 7 install DVD. Did you use that or another download to install Windows 7 on the laptop? What is running on the illegal laptop now? You had to have installed it from some downloaded .iso/DVD.

Again, just to be clear, when you buy a license from Microsoft you are getting the key which allows you to install the specific version of Windows 7 you've chosen to pay for. The Win 7 .iso downloads are all identical (except for different versions of course) which means they can each be activated by any legit license/key but only once each after they are installed on a computer.