The music industry is not helping themselves by winning these cases. I know that sounds contradictory but people that otherwise couldn't care less are getting worked up about this.
The bigger the amount the worse the PR. People are not scared, they're angry.
I actually think you're wrong, sadly. People in the real world, people that are likely to download songs, are not digital cognoscenti like members of HN. They read about this (or watch it on TV, most likely) and think "Shit! Tell Johnny to stop downloading!". Fear tactics do work. So, i would bet that the RIAA is very happy about the message they are sending.
If they would be happy they'd continue these tactics. They are realizing that they are losing the PR battle fast so they've decided to stop these cases, new ones are not being brought. To avoid setting bad precedent they have to continue the ones that are in court (or they'd open themselves up to all kinds of trouble wrt to the fees they've already received in settlements, a good case could be made for extortion: "look, as soon as a case goes to court they drop it")
Or that's my understanding of it, maybe some legal whiz here can shine some light on that.
The bigger the amount the worse the PR. People are not scared, they're angry.