That is true, there are stronger privacy protections in the EU in general. I don't consider the actions here morally justifiable, just legally.
As far as it being the actual password, a false positive AND the fact he had been creeping on a coworker at the same time seems extraordinarily unlikely to me.
I don't know, but I imagine that such considerations could easily extend to your password.
Btw, how did the sysop know that what he recovered was the actual password? I mean, it's unlikely, but at least theoretically possible that it was a false positive. The password hashes in those days were pretty weak... Just a thought; I don't think it realistically was a false positive.