As one who said "very evil" (dunno why I posted AC, nothing in there deserving of that), well, my view is expressed above. (If there's any doubt, I am sure one of the wonderful people at El Reg can confirm that I am the maker of the comment above Anthony Zacharzewski's one :) )
It is theft. Pure and simple. The user visits my site and gets a 404. Maybe because they mistyped the URL, maybe because the file never existed, maybe because I moved or deleted the file.
My server does it's job and presents the user with a custom 404 message. A finely crafted message, telling the user helpful information and maybe even suggesting a link to the page they were after, or a link to an article index or somesuch. But, it's less than 512 bytes, and the user has recently updated adobe or somesuch.
So, instead of the user seeing the text I want them to see, they instead get presented with some other text that does not originate from my server (even though it appears to), giving links maybe to people/places I do not want associated with my system.
The theft is in that they've potentially taken a sale (or whatever) from me, as well as a chance to serve my user. It's also false, because what the user sees is not what I wanted them to see, and as it's deliberate then it becomes a lie as well (assuming there is nothing to say to the user that the text they're seeing has replaced the text that they should be seeing).
Another factor is that they might display ads in there. Those ads may breach a contract I have with someone else, or they may simply be against the policies of my site.
Either way, it is simply something that is wrong and should not be getting done.
As to the idea of simply padding my file to be >512. No. I am not a fan of modern programming techniques. I do not follow their belief of unecessary bloat (*). If a web page says what I want it to do in less than 512 bytes, then that is all it needs to be. Why should I need to alter the size of my pages just because google is on a land grab?
I was unaware of this issue with MSIE, since I don't support it in any form. My pages are coded to work with decent browsers. Had I been aware of that I would've said the same in relation to that. Or any other such "service" that does this.
* Reference BOTH to Microsoft and Linux, which is by far my preferred OS. Some major dependancy issues to sort there guys - like, why should I need CVS software installed when I don't want it - but the manger wants to remove my whole desktop system to uninstall it!
I kinda like some of, but do not use OSX, so I cannot comment on bloat levels there.