From the article above - "Although these restore disks come free with every computer, there is a license key that is tied to the first buyer, which makes it effectively impossible to restore these computers for private sale, that is, unless you want to pay Microsoft for an entirely new license, at which point most people would just choose to buy a new computer."
Now I am assuming the OP is accurate here, I have neither the time nor inclination to check this but I have worked in the industry for many years and come across all manner of unreasonable clauses in license agreements and have installed Windows XP more times than I care to remember. The most likely scenario, if he was sourcing the computers from individuals and small businesses (larger businesses tend to use a different licensing model) is this.
The disks come with the PC, they are useless without the license key, which is usually stuck to the PC case or behind the battery on a laptop, this sticker is the proof that Windows was paid for. Now it is likely he was using a copy of the disk itself as many people will have lost it by the time they scrap their computer but so long as the original license is still physically stuck to the box, I don't see the problem. In fact it is common to use a different disk to do the install because newer ones ship with the service packs and it saves time patching, the license key on the sticker still works though. If you actually read the license agreement Microsoft claim this license is fixed to both the hardware & the person buying it, so technically if you make a significant hardware upgrade or give the thing away, you are breaking this agreement. According to the article we are commenting on, this was microsoft's core argument.
The story above strongly implies that scenario, regardless" If you have ever bought a PC with Windows on it and sold (or possibly even given it away) it second hand you are technically guilty of the same so called crime." If you have done that you are guilty of piracy in Microsoft's eyes, it is that black and white to them.
As I have said elsewhere, this is perfectly legal in the EU, here you have a right to sell on software that you purchased and no longer use, despite the fine print foisted on you by the corporations often saying otherwise.
In fact these days, there is rarely even a disk to copy, it's all online.
"it is likely he was using a copy"
there's where he got himself in trouble, and he was selling these computers after right?
That's a little different from reselling one computer.
Since it's all online he could have easily purchased the licenses, although I don't know how it's possible to run XP anymore.