lol, servers are cheap because people running illegal ones have them on crap machines? A very silly statement.
The difference in price you need to pay for a few people to run around on a cheap server with very little reliability, in a random datacentre on some rack where if something went wrong you'd need to phone them up and hope they can fix it within weeks, and running a professional, expensive, reliable server in your own data centre are two very very very different things. You're also forgetting the amount of power needed to host tens, or hundreds of illegal players together shockingly won't be the same amount required for 10's of thousands of people all playing together at the same time.
While I'm not sure its a hugely costly thing for them to provide in terms of total profit being eaten away, its still significant.
Remember they have to have countless backup servers ready to go at a moments notice, infact most likely have the equipment for each to have a back up machine ready to turn on instantly. Several games like these are spread across several servers to spread the load. AFAIK Lotro game world is split up onto several severs so as you move, although its a continuous world and everything talks to each other at different locations your recieving and sending info to a different server, not sure if WoW would be like that aswell or not.
Then you've got back up to the back ups for testing out every patch, beta servers, etc, bandwidth costs, wages for a lot of employee's, from programmers, boss's, distribution, PR, R&D, tech centre guys. It all adds up to rather a lot, and rather a lot of a figure significantly less than the 11million x expensive uk monthly subs.
I suspect many countries pay much less anyway, and most long term players buy long term plans again at a saving. A huge portion of that 11million are essentially not coming anywhere near close to paying a monthly subscription and in reality, several hundred people can be sharing basically the same subscription in some online cafe in China/asia where the majority of the players seem to be.
Now, I didn't read to carefully all told I'll admit, and I'm shattered for some reason but that Blizzard info seems to say they've had a net income of around a -$36 million for the previous 9 months up to September. Now, that can mean lots of things, high developements costs pre WOTLK release, the merger, etc, etc, etc. But one great product, or 10 profitable products doesn't necessarily mean a hugely profitable company.