They cant see what you are downloading , they can however see that you are downloading .

They didn't see that you downloaded copyrighted material but they saw you used up allot of bandwidht fixed around one port (your LW port)
Wich suggests file-sharing programs .

That's why you got those warnings .

And technically they can't do sh!t , because as long as you do not cross the agreement on upload/download limits (how much GB you can send or receive and such) you haven't done anything wrong by using up bandwidht around one port .

Even if they found out what you were doing they don't have a foot to stand on because legally ISP's can't spy on the content of user's data .
Not to mention the technical side of trying to find out what somebody is up/downloading , you would need some serious illigal hacker stuff to get inside of someones connection .