We cite our sources for a few different reasons. I would hope that we cite to give credit and to inform the reader who wishes to look up more information or to see other things from that author. Another reason is if there was misinformation whose fault it is.
I have actually had some people on flicker use some of my photography. I was not happy about it but I do watermark my work now.
I am not aware of any real world plagerism issues, although I am sure it happens. I would hope the person who actually wrote would prosecute though.
I don't think the internet blurs the line, it boldly crosses it everytime. This is the world we live in and you really can't catch everyone that does it. Somehow we just will need to see it as a form of flattery as long as it doesn't hurt someone or if it is really that bothersome than maybe a lawsuit may be needed.
Yes, sometimes Internet material is meant to be plagiarized and shared all over the world. Many activist groups write expressly to have their words shared and used over and over again. Intellectual ownership is a fascinating topic with many interesting nuances in the cyber age.
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