According to Billboard:
XM has taken the position in the past that it pays for the public performance of the sound recordings under its license with SoundExchange, which negotiates and collects royalties with non-interactive digital services. Equipment manufacturers pay royalties on all recording devices.Obviously, the record companies disagree, and feel that seamlessly combining the ability to receive and record songs digitally effectly turns these systems into a download service, not unlike iTunes or Napster. Of course, the licenses for download services are negotiated individually (which is why you can hear the Beatles on XM radio, but can't buy them at iTunes).
Now, the recording companies are generally seen as being willing to sue anyone for anything, but there is something to this. If XM just provides a digital streaming service (radio), and others devise ways to copy this and create MP3s from it, then they are clearly in the right. But if XM is shown to be taking "affirmative steps to foster infringement" by pushing these devices as a way to circumvent the copyrights on the songs they play, then they are in the same legal ground that Grokster was (and simply in the wrong). Should be an interesting case. Certainly, if the recording companies prevail, that will be the end of these devices, as XM is not going to negotiate separate licenses for all the songs it plays and thus limit the catalog of songs it can play for its largely radio-only customers.