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Just a quick question, haven't researched anything about it yet, trying to get a fast answer: I know 8 bits equals 1 byte, but why the differentiation? I know Kazaa works in bits per second, but bittorrent works in bytes per second, right?
So basically, when and where is it preferred to use bits or bytes?

I coukld be wrong, but I think bit per second is for data transfer rates and bytes is for data storage. e.g. when you get 512 boadband, its 512 kilobits per second, but if you look at say internet explorer's download rate indicator, it only gets up to a max of about 60 kbps, because that measurement is in bytes. ALso, LAN/network speeds are in bits. I think the multiplier is something like 0.12, so, 512 bits = 61.44ish bytes, and a LAN going at 100Megabits can transfer 12 Megabytes per second.

If someone could confirm that, it would be great.

Modems and communications lines were originally rated in bits per second because some systems required 7 bits per byte and some required 8 (and some even more), which made it difficult to judge how much time it took to transfer information otherwise. Modem manufacturers and later broadband ISPs kept the bits-per-second measure because, after all, 2 megabits per second sounds a whole lot faster than 250 kilobytes per second.