I really only use Windows to run games, so I took the free license "upgrades" for the Win7 licenses I owned. From what I've read, Windows 7 and 8 will be getting a lot of the features that require/activate the telemetry stuff via future updates anyway. We'll see if it actually happens.
I have little doubt that the way that Microsoft is using telemetry data is mostly benign. Cloud-based services for voice recognition, typing recognition, search caching, pattern recognition (things like Shazam), etc. are nothing new. They're just somewhat new to the desktop world...they've been commonplace in mobile platforms for years. Windows 10 isn't doing anything that most smartphones don't already do, and I actually believe that the primary purpose of these service is to provide a certain kind of user experience (I hesitate to say "better," as that's going to depend on personal preference...more "mobile-like," maybe, which people seem to largely enjoy I guess). As others have mentioned, it's way too much data for anyone to be using to spy on an individual unless they decide to target someone in particular.
The issue, IMO (and as 1Samildanach mentioned), lies in how much of the data they retain. If they retain the data (and they do...some of it, at least), then the data exists. If the data exists, then there's a pretty strong temptation on someone's part to abuse it. Example: let's say that someone at Microsoft with access to the data wants to stalk an ex...self-explanatory.
A more frightening example: let's say the NSA wants to use this data to root out terrorists, and they're able to convince MS that they should be allowed to do that. They could create a daemon that periodically mines this data...searching for certain kinds of patterns defined by an algorithm they've created to recognize terrorist activity...somehow. When this software identifies a computer matching this set of patterns, it forwards this information to an intelligence anolyst and puts this person or persons on a "watch list." At this point these targets are being watched and monitored. What if this algorithm is flawed and generates false positives (it would/will/is)? This could be a big problem for the person(s) being watched. This can negatively affect someone's ability to travel, their ability to get jobs, their credit, etc., and they might not even know it's happening. This is in addition to the principle violation of privacy, which is, IMO, not a good thing for a government/society to find acceptable...even when it's done in the name of safety.
Anyway, privacy should be a concern for all of us, even those of us with "nothing to hide." It's a door that - once opened - is very difficult to close again, but easy to open wider. People should resist giving up privacy whenever possible to avoid setting bad precedents that could grow into real problems.
I personally use Linux Mint and Debian for most things except gaming. Even then, I've managed to find some good information online for blocking telemetry data from Windows, Ubuntu, Android, and the Chrome browser using my firewall. It seems to work pretty well. I have a DIY router that I put together using a cheap Intel Atom board from eBay and the pfSense "security appliance" OS. It's pretty easy. From there, you can install several packages that can block traffic based on filters, many of which you can subscribe to and automatically get updates as threats change. Some you have to set up yourself, and that's not quite as easy. I wouldn't recommend it to a non-techie unless you know someone that can help get it set up. It would be nice if consumer routers had some of that functionality built in.
tldr;
Is Microsoft spying on you? No, probably not. Is the industry-wide uptick in data collection cause for concern? Yes, especially if the data is being retained. Is the sky falling? No, but buy an umbrella anyway.