Knock Offs: Upgrade or Downgrade?

My family went on a huge vacation to China this summer:

The museums, culture, and food were amazing...
But my sisters and I were truly tickled pink by the shopping and great fakes in Shanghai:

In the markets, we rushed from store to store, haggling, bargaining, and bluffing with the ladies who had 'looks real to me' Burberry, Puma, Marc Jacobs, Prada, etc.

Thinking I had a good grasp on what real vs. faux looked like, I made my purchases with confidence.

I bought this 'Burberry' scarf/shawl (as a souvenir of course!):

for about...$10.
A similar piece:

Is $225 at Saks.

I have a couple real Burberry items...and I honestly thought this scarf was a good match.

The other day I went to the snootiest of snooty sample sales and set my designer imposter scarf on a table. A guy came by to look at wares on the table, so I moved my scarf. As I did he said, "Oh it's yours. For a second I thought this vendor was selling Burberry Knock Offs."

I was shocked and awed. I knew that I'd paid $10 for it abroad, but the fact that this snooty man could tell it wasn't real totally trampled my belief that all the fakes I purchased in China could actually fool anyone in NYC.
I felt...tacky!

My question is this: Are fakes an upgrade or a downgrade?

Let's weigh the pros:
1. If a fake is actually good enough to fool people, why bother buying the real thing? My sister's sweet 'Ferragamo' clutch is real leather and a nice bag:

and also unique enough that only Anna Wintour would know the difference.
2. Also, I think Mr. Ferragamo is charging wayyy too much for his $800 bags. In the spirit of democracy, luxury aspirations, and fashion, is it so bad to rock a *great* fake?
3. Who cares if Mr. Snooty knows the difference? Most people can't tell at all. A fashion assistant friend of mine complimented me profusely on my shawl before I dropped the "I got it in China" bomb.

Then again, the cons:
1. Apparently buying fakes is immoral. Counterfeit sales negatively affect Burberry's billion dollar business...and according to a WWD article last year by Liza Casabona, buying fakes contributes to organized crime:(
2. Why bother with super fancy labels at all? In Fabulosity, Kimora Lee says, "...Don't buy fake luxury-brand pieces--the people you're trying to impress will know right away you got that Louis Vuitton on Canal Street. Go for unexpected middle pieces from middle-tier brands (the ones other women probably won't pick)." Good point.
3.Lastly, the tacky factor. Tackiness=fashion suicide.

So, are fakes ok? Or not so much?
Should I walk my 'Burberry' over to the Salvation Army?
What do you think?

Smootches!

PS The NYTimes writes about the perils of carrying large handbags here.

Sales:
*Paul & Joe's Sample Sale is this Thursday-Sunday from 12-7 at 361 W. 17th St. Between 8-9th Aves. Lauren Moffatt makes an appearance on Friday December 8th! Visa, mc, amex & cash.
*Theory Sample Sale care of Clothingline: 261 W 36th Street (between 7th & 8th Ave). 2nd Floor. New York, NY 10018