That's what confuses me. Isn't there a gray area here where it's not illegal to download copyrighted material, but illegal to reshare it, aka upload it.

So if that is true, then youtube-dl is not illegal and this DMCA is easily reverted.

RIAA is just trying to use their deep pockets against a nobody and Microsoft is basically saying "We side with you" knowing damn well their lawyers know this code is not illegal.