North Korea.
I don't know what their actual copyright law is (they might not have one at all), but it's likely not concerned with protecting "evil Western art". Russia has a somewhat milder version of this, too (it has a history of not honoring Western copyright claims). Different countries have different laws regarding copyright, and this is important. There are things that are in public domain in Europe but not in the US, for instance.
In general, I think that as long as proper attribution is observed, there's nothing wrong with using copyrighted material for noncommercial, artistic purposes. Copyright should be reformed, and that reform should prioritize artists as a whole and their audiences over media corporations. Indeed, I'd be flattered if someone used something I made to make something else, even without explicit permission. We're not getting money out of it, so you could say we're only doing it because we love those things so much. Everyone here is doing this for the art, and we're not getting anything out of it but an artistic experience.
As for morality, let's not forget "legal" and "moral" are not only not the same things, but can in fact be the opposite at times (yes, even in "civilized" countries). We definitely should be doing what is right, but while it's preferable for it to be legal, I think it doesn't necessarily have to be (it is a huge responsibility, though. If you wish to judge those things yourself, you're on your own and it's up to you to stand for your decisions). Remember that in case of most of the music and art we reuse, the copyright is there to protect whatever corporation is selling the stuff, not the actual artist. We are not stealing things - mods generally state (IIRC) where their music, assets and such came from. Sometimes it does get muddy - an asset in a popular mod could be re-used and that mod would likely be credited, because it's easier than looking in the credits.
While not strictly immoral, I think it's not a decent thing to do, the original author should be given respect.
If anything, we may need better enforcement of attribution rules. It shouldn't be taken to ridiculous levels, but someone ensuring that we know where every asset comes from likely wouldn't hurt the community. Only the biggest mods like BP can afford to make original music (in which case it's preferable, and not only because of copyright issues).