I don’t think I’ve ever seen any of my colleagues do anything actually illegal (such as photocopying copyrighted material) to cut their costs, but I have seen several other options. The most common, I think, is sharing of books: A few students will go in together on a book, or one student who values the book most will buy it, and others will borrow it. This is especially common for supplementary books, and for books used for reference after a class is over. The other day, one of my professors actually wandered into the office to ask if I had a copy of Schutz’s grey book (I didn’t, but referred him to another student who did).
Second, there’s checking the book out of the library. The library will generally have one copy of anything, and grad students here are allowed to check out books for an entire semester. The downside, of course, is that they usually have only one copy, so only one student can do this at a time for any given text. Of course, the most expensive books are generally for special-interest classes, which might only have five or six students in them, and library books are also often shared on request.
Third, about half of our grad students are international, and bring the international editions with them. Yes, they’re often shoddily bound, but so are a lot of American versions. And they’re often in other languages, but for the international students, that’s just as well. And the prices are typically only 10-20% of the American editions.
Fourth, an old version of the book will often be sufficient. It’s generally recognized, for instance, that the second edition of Jackson’s E&M book is superior to the current third, and my E&M profs both gave the chapter numbers for both versions. The problem sets were different, but that just meant you had to borrow a classmate’s book for about five minutes a week to see what the homework was.
Fifth, you can sometimes save money with some careful pre-planning. For instance, we only offer General Relativity every other year. The semester after the course had been taught, I was in the bookstore, and saw a few copies of Misner, Thorne, and Wheeler (recently bought back used from the previous class) for only $50, significantly less than even the usual used price. It was so cheap because it wasn’t being offered that semester, so demand was low, but I knew I would be taking GR eventually, and that when I did, MTW would probably be the text, so I bought it then.
Sixth, most professors will be merciful. I had a math professor, for instance, who wrote his own book, printed it at Kinko’s, and then sold it to us for cost (about $15, as I recall). Of course, most profs don’t have their own book, but they’ll generally do what they can to ease the burden, and sometimes will even loan a student their own personal copy of a book.
Finally, despite what the publishers may claim, it’s possible to sell a book cheaply. My orbital mechanics book, for instance, is currently only $30, and I think it may even have been less when I bought it. I’ve heard that this was a result of some action by Danby (the author), but even if he accepted no royalties at all, that wouldn’t account for the low price. Surely, if they can afford it for one (and in a relatively small subfield), they could afford it for all.