There's a point about fanfiction that I think both participants are
missing. The legality and illegality of various fanfics is highly variable.
At one extreme we have the so-called "original fanfiction" -- stories like
_Macho Caballo_ or <ahem> _Missy Foxglove,_ in which only a few concepts
are taken from one or more stories.  At the other end are the stories in
which the author essentially retells an episode or storyline with a
character added or dropped, or simply retells the episode as is, resulting
in a "novelization."  The former are completely legal -- _Macho Caballo_'s
borrowings from Ranma are slight -- and the latter are illegal, not just as
trademark infringement, but as actual piracy.

This means that the greater the difference between a fanfic and the
original work, the less the author's rights are compromised.  Stories like
_Evil Moon_ and _Neon Genesis Evangjellydonut_ would never happen on the
original _Sailor Moon_ or _EVA_, and persons strongly interested in
purchasing the originals would not consider them a substitute.  A story
closely based on the original, however, might cause a person to decide not
to spend money to see the original, or to consider it "spoiled" for him in
some way.

My sense of the matter is that a work of fanfiction should, at the very
minimum, have a new plotline.  A unique take on the characters or a new
twist in the situation is good too, but what should be avoided are the
retellings and near-retellings that occasionally show up here.

-- David