It was a follow up response to this question:
Fan fiction is technically illegal too. It's just if you're doing it not-for-profit in a small community, odds are you're not going to be sued over it. So in my opinion, yes, non commercial games in this setting, when the music is encoded, runs about the same risk as making a fan fiction game as is less of an issue than making either into a commercial game.
If you're going to work in this industry, at least brush up on IP laws.
Fan fiction is generally guilty of Trademark infringement, not copyright.
As for music - how much of a "threat" to the music industry is some kid filesharing a few songs from a CD? (it wasn't too long ago the record execs were saying radios with tape players built in were going to kill the music industry). But they go after that kid anyway. The cases almost never go to trial because the defendants can't afford the lawyers (these are civil proceedings so the state is not required to provide one), so they get settled for around $1,000 a song.
In the case of sharing a song directly it means stop uploading (and downloading) said songs. In the case of a game it means stop distributing it. Find everybody else who may be distributing it (yes, this is your responsibility) and get them to stop distributing it, and then decide if it's worth the trouble of rewriting your game, if your web hosts decide to even continue to deal with any more.
The risk may be small, but the consequences are not. And that's before you even look at monetary damages (and again, all that - including monetary damages, apply equally to "free" and "commercial" games).
Edit: But as content creators, copyright is on our side. It's what protects our games from being distributed without our consent, whether commercially or not.
Copyright is not evil (it's implementation may be screwed up with the length of time involved), but without it, anybody could take your game and start selling it themselves - again, whether you released it commercially or "free".
Learn the rules and follow them. They're really not all that complicated - both in what to do to protect your own work (read the FAQ I linked to) and in what to avoid using..