nearly perfect film. but one thing always bothers me....

He knew, I think. He acknowledged later that he "took his own interpretation of it," this could also be hinting at his literature, which could have been borrowed as well.

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A psychopath ain't a professional. http://tinyurl.com/ycfv54d

I agree with CoolHandChowdah.

One thing that bugged me about that part: Why didn't anyone in the crowd immediately object since "Hey You" had been a hit for years by that time (1986). Or maybe some people did immediately complain and word ultimately made it to the faculty. Regardless, it was way too popular of a song to try to plagiarize; after all, even Walt's housemate Lily (Anna Paquin) recognized it.

he could have make Walt plagiarize some very recent song by a not so famous band, but I think this song is important to Baumbach and the lyrics carry a message.
like, if teh song was not written in 1986 he should not put it into his film to avoid being listed as a goof on IMDB ? :))

I can believe Bernard not recognizing the song. When I was in high school, friends of mine used to hand in lyrics to songs like "Stairway to Heaven" in creative writing class and get away with it.
Certainly, listening to Pink Floyd would not have fit the image Bernard had made for himself. Yes, Pink Floyd has a certain cache among some intellectuals, but Bernard had a disdain for popular art (note the way he reacts when he's seen with the Elmore Leonard book in the hospital, the way he talks down the most popular Dickens, etc). Even if Bernard had heard the song before, he might have merely thought it sounded familiar, but he wanted so much for his son(s) to be artists, he accepted his son's claim the he had written it.
The point of the whole thing, I think, is not to show Walt as a plagiarist, but to show how far he could deny reality for the sake of gaining his father's respect. That's why Baumbach had to use a well-known song. Obviously, no sensible person could have expected to get away with it. If it had been an obscure song, he'd just look like a cheat. Because it's a popular song, he looks truly troubled.
Walt winning the prize more difficult to believe, I agree. It's possible, though. He only needed to fool the judge(s). I would think many or most of the audience would have known the song, but are they going to scream out an objection during the performance? Maybe they thought he was just joking around about saying he had written it. That's what I thought the first time he said so. After the prize was announced, someone notified the judges, and they looked into it & revoked his prize.

Most people were only familiar with the hit single from The Wall. So if Bernard wasn't a fan of classic rock radio and never had the album, it's quite understandable that he never heard Hey You. Even most of of Walt's classmates would have been a little young to know it at the time. They all would have remembered the single from 1980, but most probably hadn't heard the album. Lili was the right age to have recognized it.

This is coming from someone who was about Walt's age in 1986.

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As thought provoking as this film was at so many points, it was this very question that bugged me the most.

While I can believe Walt's family may not know of the song, or even of Pink Floyd, the size of that crowd during the talent show was large enough to insure a good many in the audience would immediately recognize the song Walt was trying to "cover" and result in at least some murmuring to the effect Walt not at all original. Perhaps decorum made them stay silent and wait to blow the whistle till later.

What bothered me the most is how self-righteous and glib he was at explaining his plagerism; and how it never occurred to him he'd be found out. Here's a person quite full of himself.