There are some minor restrictions in addition to the nags. I think you can't change your wallpaper and some other silly stuff. You might also be limited in the types of updates you get.
As far as I know you get all updates (and definitely all security ones). The "trial" never expires. If you're okay with the watermark and not being able to customise your desktop, you can use the trial forever.
In theory, you would most likely be in violation of your license to utilize Microsoft’s intellectual property. In practice, they don’t seem to care much. I suspect most of their Windows-related profits come from enterprises and OEMs.
Do Microsoft even still "care" about Windows these days? I speculate they will eventually make it freemium to hook new users so they grow up and subscribe to their real cash cow - Office.
According to their 2018 reporting, Windows and Xbox is actually making more money than Office. In reality, they have an almost even three way split between Productivity, Azure, and Personal.
They probably care if someone does it large scale, but for individuals it seems fairly clear that they'd prefer people running a current Windows they didn't pay for over them sticking with an outdated version or switching elsewhere.
Ok, but the question is, would a legally-knowledgeable, unbiased person say I’ve done something legally “wrong” if I use Windows without entering a license key?