You join us in Hanover Quays, Dublin, in the living room of a man called Harry Crosbie. Part of the significant chunk of Dublin he owns is a share in the Clarence Hotel. By day the other partners, Bono Vox and The Edge, play in a band you may have heard of called U2, with two of their mates, Adam Clayton and Larry Mullen Jr. In order to dodge the autograph hunters every day when they go in to rehearse, they take a short cut up a spiral staircase in Harry's kitchen. Later on they'll lead 30 Radio 1 competition winners, NME and a select group of friends up those same stairs for an incredible five-song set. But first, we're gathered here for a special state-of-the-universe address.

In one corner there's Bono, the original bloody-minded Dubliner who kept all the reading lists at the University Of Life. Edge, the most Zen-like guitar hero in the world. Adam, the reformed hellraiser and token posho. And Larry, the Butch drummer whose single of the year is 'Mary' by Scissor Sisters. You'd have to be a casting director on I'm A Celebrity...to assemble a more wildly differing group of people, but 25 years on, history's most robust rock'n'roll group find themselves closer than ever and still on the up.

It's been a momentous year for U2, even by their standards. Ask them their defining moment of 2004 and Bono will say the moment he discovered album number 11, How To Dismantle An Atomic Bomb, was Number One in 32 countries, beating their previous record of 31. Adam will say the thrill and relief of single 'Vertigo' going straight in at Number One. For Edge it was the night they finished the album and realised it was indeed an album, rather than just a load of songs they'd written. And for Larry, it was driving round New York on a big fuck-off flatbed truck (one of only five moments he "really remembers"; another is Live Aid). Can you imaging REM being this excited about their band?

The whole of next year will be spent on the road, so Adam's off to see his parents in Malaysia for Christmas, Larry's doing the same in New York, and Bono and The Edge will spend the holiday at home, just like in the old days.

"We had one new year in Dublin where we all went into the sea at midnight," recalls Bono. "You can't imagine how cold the Irish Sea is. We came out of the house, had shots of ice-cold Russian vodka, and I was higher than any kite you could fly on Killiney Hill, which is where I live. We all wrote out prayers, or wishes for the ones who didn't believe in God, tied them to fireworks, and set them off over the sea. We watched each one go out and how high it went. 'Yours is in trouble! What are you wishing for?!' I take New Year's Eve very seriously on that level, I have a thing that I feel like I'm missing and want. I haven't figured out this year what it is. It's usually some wisdom I need for a job that I have but can't do."

But before we worry about next year, there's the past one to set to rights. This is U2 and this was 2004.

Bono: What I love about them is the sense of jeopardy. You feel it could fall apart or they could love you. And I love that, I'm a fan."

Bono: "I don't know. And I wouldn't dare comment upon people's very private places that they go to. There's been very little written about the psychology of being a performer and, you know, the kind of spin you get into when you try to be true to yourself, the cost of being a performer where you make yourself vulnerable. I'd never comment on drugs really, other than to say don't judge people too harshly. Because you don't know what they've been through. But neither can you make romance out of it. I think we know that much. I grew up in Dublin in the '70s, where Dublin and Glasgow were the two capitals of smack. What happened was, when the Ayatollah took over from the Shah of Iran, people got out with white gold, as it was known. They smuggled their valued possessions in heroin, so the flooded market became really cheap. We were offered smack that was cheaper than grass. It was really, really cheap. So people smoked it, because they were like, 'It's not he same as banging it up.'"

Bono: "No I didn't, but my mates did, and they got badly done in. So that's why I'm never gonna do it. You have to know when you're dealing with something that's bigger than you. Maybe you can do it once, maybe you can do it twice, maybe you can't, I don't know. But the arrogance of thinking that you can do it once is my worry with it. Pete Townshend said the first time he did it he couldn't live without it, he'd hit nirvana, goodbye. I don't have the experience."

Bono: "I called John Peel from a telephone box when I was 18, and I ran out of money, trying to bend his ear. He was going, 'How did you get my home number?' He never really took to our band, and in a way that's what I liked about him. He had very individual taste. He didn't like us, didn't particularly warm to Oasis, yet loved The Undertones. You couldn't but respect that deadpan humour and a man who referred to his wife as The Pig in a PC era. God bless him."

Bono: "It's changed things forever, and it could be very good. The music business is largely run by people who are afraid of the future. A lot of them are still calling themselves 'record executives'. It's taking the piss! In America the music business turned down ringtones - $3billion a year business. They cry for help, 'Piracy is ruining our lives.' But they haven't found a way of giving people what they want when they want it for the right price. For me, downloading's like the paperback. And the CD is the hardback. But the jewel box that the CD comes in, for me, is not interesting enough to pay that price."

"People sharing our music, personally I have no problem with. It's when they're doing it as a business, I have a real problem with that. But at the end, I'm a big rock star. I can live with it one way or the other. But for people in small bands? The music business is down 20 per cent because of piracy...which it isn't but they say it is. If that was true, that's really serious, because for somebody who's in a small punk-rock group, that's the difference between renting or buying."

Larry: "We did that Apple iPod advert and it was like, 'U2 sell out', accepting sponsorship. Bet we took no money. We decided to do that, you know why? Because we knew that we would be on a TV station near you. Within the band there is a consensus about how you do this without looking like you're just taking the cash. Working with Apple, it's one of the coolest products around, they've got amazing designers, they have almost single-handedly saved the music industry, because the industry was going round suing Napster, scratching their heads, while Apple were busy figuring out a way of downloading music where people could pay for it. And surprise, surprise, people are happy to pay for the music! And because it's not sponsorship, I'm happy to stand up and say, 'Apple iPod, yeah, it's a cool product.'"

Bono: "It really did get stolen! It was in the south of France."

"It was stolen twice! Once again, along with Eminem's, they're both true. And the original time with Achtung Baby where it was stolen from my hotel room in Berlin. But they both, together, do look like the perfect plan."

The Edge: "We genuinely were grilled by the Nice police. Literally interrogated, because I think they half-thought it was a publicity stunt as well. We have our suspicions. When it leaked - when you actually start sending out parts to the production facilities where they make the CDs, at that point there are literally hundreds and hundreds of people that have access to it, and it's almost impossible to lock down."

Bono: "It would look better on us in a way if we did plan it, but we didn't. I missed Bastille Night with my kids because I was held for four hours by the France police, trying to explain to them why I wound not rob our own album! Fair play to them, everyone was guilty 'til proven innocent! They took it very seriously and I kept saying, 'Can I go now?' and they kept saying, 'No'. There was a little bit of Inspector Clouseau going on, and it says a lot about them that the rich rock stars were made to go through the same as everyone else."

Bono: "We're tired of fiction. It's part of what's playing into The Libertines. People are becoming aware of media and how it works, manipulation. And reality TV is the ultimate manipulation. But that's why people like it, they think it's unreal, they think they're getting it. The other thing that's going on is revenge. Revenge on celebrity. In whatever age, whenever a hierarchy becomes oppressive - be it the church, the crown, a government - revolution is never far around the corner. To me the oppression of our time is celebrity, and it creates two things: envy and revenge. Envy is 'I want that - that body, that house, that car', but then 'I wanna see people fall, I wanna see those crowns get knocked off, I wanna see the other side.' But then people look at The Osbournes and realise that they are a very loving family. And it doesn't fit."

Adam: "I don't know if she was there as a kind of a freakshow-stroke-titillation or because it was a relevant representation of society, but I'm all in favour of everyone being represented. I think it's absolutely healthy. But the thing that's noxious about celebrity is that it upends God's order of things. The real romantic figures surely, should be nurses, firemen, mothers, aid workers, - not aid spokesmen - these are literally heroic people. People who run back into houses and pull out babies. In God's mind, they are at the top. The idea that a bunch of spoilt-rotten, self-indulgent artistes - and I include myself - who are overpaid, over-nourished and over-exposed most of the time...that we're more important than them, it's upside-down."

Bono: "I didn't take sides because I have to work with both sides. But when it comes to these issues I have to become a voice for people who aren't in the room, above my own opinion. So, everyone's clear, Blair and Bush know my feelings about the war...but I don't go on and on about it because we work together. But just a couple of things about Bush which might be of interest. It's generally accepted that President Bush and his cabinet are all fundamentalists. They are not. No-one in the cabinet is, except for John Ashcroft, who's now left. Yes he's a religious man, but not that. And one thing I'd also say is the left mocks the right. The right knows it's right. Both ugly traits actually. I've learned that some of the people who can be pretty scary up front, religious conservatives, have some idealism about them, rather like a Muslim living that very strict life. You've got to respect people who can live to their code. I have great respect for conservative people that I didn't years ago. And I have found them very easy to deal with, not least on these Africa issues."

Adam: "It's terrifying that so many nations can be drawn into such a flimsy excuse for a war, and we can sit by and see a civilian population continue to be abused. Horrendous. And it's the type of wound and abuse of a nation that is going to turn up and bite us on the arse. You just can't do that."

Bono: "It was very difficult to take a position because what was being said was being presented in such a way that 'the Iraqi people are already being abused by Saddam'. I suppose that was factual, that regime was very harsh and cruel. I never really believed the weapons of mass destruction thing. I just thought after ten years of UN inspectors and sanctions, does he really have the potential to wage nuclear war? But I thought maybe they could effect regime change in a way that would do very little harm and it would all be over in six weeks or so. But it was absolute lies and absolute spin and they went in there with no local understanding - it underlines to me that one should take very seriously the idea of going to war. There should never be a justifiable excuse for it except in your own defence. The idea was this was a righteous war, that we were gonna go in there and sort it out, and it's just bollocks."

Bono: "That's the decision that the American people have made. They had the opportunity to change their minds, they had a lot of information available to them and that's the decision they made. It's good to know that's where they're at and you should never underestimate that."

Larry: "I'm not anti-war, I'm not a pacifist, and I thought what America did in Bosnia was right. I know a lot of people say there were civilians killed, but I actually think it was the right thing to do. It was when Africa went, 'Why aren't you fixing this?' People forget that America, no so long ago, were heroes to a lot of people in Europe when the European Union and the UN were basically sitting on their arse because they were impotent and still are. But as far as what's going on in Iraq, I just can't figure it out. It's completely mad."

The Edge: "There was one incident with the mushies in Adam's house in about 1992. I took a few too many, and went to bed before the effects kicked in. I woke up completely off my head at about three in the morning, in this completely dark, pitch-black room, having all these visions into the nature of the universe. So I got my Walkman out, stuck it onto record - the red light was pretty fascinating for the first ten minutes - and started dictating all these great insights. And I woke up the next day, feeling a little poorly, as you can imagine, and remembered the Walkman. So I rewound, pressed play. And all I could hear was moooooooommph. I'd been speaking into the battery compartment for four hours. Gone! All the secrets of the universe, lost forever! I was devastated."

Adam: "They used to grow in the fields out near me, so I did like a magic mushroom in my day! However, I overdosed on them in Jamaica once and it was very unpleasant. As long as you don't eat too many of them they're a very interesting little psychedelic."

The Edge: "Personally I think you've got to be a bit careful with all that stuff because all drugs end up taking the piss out of you if you're not careful."

The Edge: "Yeah, they're fewer and farther between, but we still like to have a big night. If we're on a big night it can be quite a big night."

The Edge: "Dublin big nights can be pretty big. The trick, I find, is to just keep going. The very few that keep going until the following day really hut the magic time."

Bono: "I think the piano hook is really great. It's much more...it's much more...I much prefer it. I much, much prefer it because the music is a little more about the lyric. It feels a bit more tense, which I think is what some people don't like. It's not so sugar-coated."

Legend has it that Bono has a speech which he hands down to up-and-coming rock stars, like the manual of how to survive in the eye of the storm. This year, Razorlight, The Killers, Scissor Sisters and Snow Patrol have all been on the receiving end. Here, for the first time ever, is what he tells them...

Bono: "I say some really basic things. Like, if you go over and you tell Americans they're stupid, they're probably not gonna come and see you! Ha-ha! And the other thing, going abroad is not crap, OK? This is the sort of shit I'm talking about! This is not the work of a finely-tuned mind! This is just the ABC. Waking up in Memphis, Tennessee, where Stax was born, or where Elvis Presley cut 'Mystery Train' in Sun Studios, or where Martin Luther King was shot dead, is NOT CRAP! That is interesting! You might turn on the television and it might be the moronic inferno. But you don't have to watch the television! America, to me, was just full of possibilities. Just looking at the poetry of the place names. Detroit! I love Detroit. Detroit is fucking hard. Detroit's like Birmingham, I like that. An industrial town, Motor City... no-one buys their cars any more so it gets angry and... Eminem happens! One of the great writers of the age comes out of Detroit. So, y'know, waking up in Lisbon. Waking up in Madrid. Go and see where Keats died, there's still a chill in the room and letters of him bumming money off his rich relatives. I generally want to shoot whingeing rock stars. But unfortunately they often want to shoot themselves. And I'm just saying STOP! I just tell people that, as good as they think it is, the life, it's even better if you don't fuck up. Take it on and kill and make murderous pop songs, and burn down awards shows, and set fire to your imagination. And set fire to my imagination. When music is going off, there's nothing like it. When Nirvana were around. When The Beatles were around. This is what we're all waiting for. And you complaining about your PDs (daily cash allowance on tour) and being away from your mates for three months on a tour bus really isn't... SHUT UP!"

Bono: "For my album I'm gonna pick Interpol, and for the single, it's between 'Somebody Told Me' by The Killers and 'Take Me Out' by Franz Ferdinand. They're two masterpiece 45s."

The Edge: "I guess 'Vertigo' would be my favourite. I'm trying to be as objective as possible. And... our album. Again, being as objective as possible.

Adam: "Scissor Sisters is an all-round classic. It's quite grown-up. I also like Razorlight. Franz Ferdinand is a great record but I'm not sure it's as well-rounded, so I'd say Razorlight is my record of the year."

Larry: "It would have to be Franz Ferdinand, and the Scissor Sisters' 'Mary' is my favourite single. I'm not a drummer's drummer, I don't give a shit about technique and all that. I like pop music. I'm interested in melody."

Two weeks ago, U2 set 2004 to rights in NME's Christmas issue review of the year. From the top of the world, they surveyed the land and saw the same hive of Brit-based creativity that they sprang from back in 1978. And you might say they were qualified to talk, since 2004 was the year when the world's biggest band went even huger, nixing their previous records with buffed-up new collection How To Dismantle An Atomic Bomb. But are articulated drive time behemoths, arena tours and mincing with world leaders not a little bit, well, wrong? Are U2 not the enemy?

Back in their underground Dublin lair, we presented Bono with the evidence.

So on the way out of his final, successful visit to rehab, Pete Libertine is run over by a bus. And he gets up to Heaven, and St Peter gives him the guided tour and shows him where all the dead rock stars hang out. St Peter points out to Pete all his new friends: there's Kurt Cobain, John Lennon, Janis Joplin, Jimi Hendrix - all the greats, yapping away. And then in one corner there's a bloke with jet-black hair and wraparound shades, bellowing in a thick Dublin accent about Africa and the AIDS crises. And Pete looks at Saint Peter confused and says, "Is that Bono? But he isn't dead." And Saint Peter chuckles and shakes his head. "Oh no, that's God. He just thinks he's Bono."

"Hah HAHAHAH! Guilty, your honour! I fully understand it. Because if you've got big ides and your head is big enough to think you can pull them off, there must be some megalomania," laughs God aka Bono. "But that's not how I see it. The way I see it is, there's opportunities that I would be just a jerk not to take. I don't see it as megalomania, it's the curse of having an idea. I'm one of those people who has an idea and once I've had it, I have to see if there's a way of executing it."

One of the first things you have to understand about Bono is that however much you might think he's wrong, you'd always lose the battle of wills.

"In Ireland, our very constitution was dreamt up by a combination of poets, revolutionaries, priests, mad drunk people. You can't tell Irish people to shut up about politics or religion, they never talk about anything else. And you don't even have to know what you're talking about! I really believe that. You shouldn't think, 'Oh I'm not an expert so I can't voice off'. Hold on. We have these antiviral drugs. OK? And they don't. And they don't like us, and apparently that makes the world more dangerous. Now, I haven't been to university, but can't we just take those two problems and put them together? And I've got a loudhailer. I've got a fuzzbox and I'm gonna use it."

The second thing about Bono - and the thing about U2 - is that they really don't see themselves as bloated, overblown rock tarts. They see themselves as punks; certainly they've got more in common with the art-pop of today than you'd think. Paul Hewson and David Evans renamed themselves Bono Vox and The Edge. Fast-forward by 25 years and you've got Babydaddy and Ana Matrionic. Think how different their early attempts to inject the Big Themes in the post-punk landscape are from Bloc Party's noble attempts to bring brains back into the now. And consider that their mid-period attempts to frazzle the senses with the Zoo TV and Pop Mart tours might just have been a massive, mutant take on Franz Ferdinand's attempts to turn a gig into an interactive experience. The truth is that U2's real contemporaries weren't stadium pomp bands like Simple Minds but art-rock eccentrics like The Teardrop Explodes. To Bono, and to U2, the only thing that separates them is that they're the ones that survived, because they didn't fall for the same "bullshit" as everyone else.

"The indie '80s," shudders Bono. "And it went through into the '90s too. Only Oasis were the first to just call the cops on this bullshit. This idea of 'independent'; indie versus corporate. The idea that if somebody is signed to a different label, one's round the corner in this office, and one's round the corner in that office, one's better than the other. It was like Mao, it was like the fucking cultural revolution. You couldn't be big in America."

Are you saying that because you went massive you weren't allowed to be cool?

"We didn't care! We didn't even go there, we actually went around all of this," he says defiantly. "We loved all this music, but something in our 19-year-old heads just went, 'I don't believe it'. I actually just don't believe it. This isn't right. There were words like 'street credibility'. What the fuck is that? Explain that one to Prince. Explain to Prince why the fact that he makes his own clothes and likes vivid colours and is listening to Duke Ellington, and is part of - sure - a corporate structure back then, but was building his own dream within it. Explain why his music isn't as good as somebody who's just got out of art college and daddy's bought them a garage in Hackney. It's awful. I can't believe they got away with it. And then it was exported to the US. We'd just got out of ten years of this, and then it went over to the US and you had that kind of mentality in some of the grunge groups, which nicely fucked them."

Bono pauses.

"And then you had that heartbreaking moment where the bass player in Hole (Kristen Pfaff) who topped herself; took her own life (Pfaff was found dead in her bath in June 1004 with drug paraphernalia by her side. An autopsy failed to establish the cause of death). And her father was interviewed on the television and he said she was really agonising over having signed to a major. (Long pause). It's like...six and a half thousand kids dying every day of Aids in Africa. There's a lot to be depressed about, there really is. And of course selling out your own values is one of them. But she hadn't! Independence...there is no more independent group in the history of pop music than U2. Never has been. There's never been a group that had less record company ever telling them what to do. There's never been a group that owned their masters, their recordings, and their copyrights for publishing. We designed, from our marketing to our album sleeves, to our videos - that's why a lot of them are so shite. There's never been a more independent group."

There are a few other things that might surprise you about U2. They've never accepted sponsorship for their tours or sold their music for adverts (they didn't take any cash for the iPod advert - they just realised it was a far more effective way of getting 'Vertigo' heard than any radio station), and there's never been any solo projects.

Adam Clayton (bass): "If being in U2 was creatively frustrating then maybe people would go off and do other things, but it's fulfilling enough that you don't need to go and have a reggae band for the weekend."

Do you think you've managed to redraw those punk rock battle lines with your new album?

Bono: "Going into this album, I had to ask myself a few hard questions. One, what can we contribute? You know, 'cos if you've nothing to say, shut up. Two, I kind of thought, what made me want to be in a band? I wanted to check where I was to where I am. So I went back and listened to all the music that made me want to be in a band, right from the Buzzcocks, Siouxsie & The Banshees, Echo & The Bunnymen, all that stuff. And what was interesting is, that was what a lot of people in bands now are listening to anyway. So in a funny way, it made us completely contemporary.

Adam: "Obviously our musicianship is a little bit more polished than it was, but our actual technical knowledge is probably as rudimentary as it always was. Ultimately we tend to just bash it out until it sounds and feels right."

But do you understand why, to many people, you might be considered The Enemy?

The Edge: "I'm sure there are a lot of young bands that are just not into us because we're successful and because we've been around for a long time. I would just say turn that into a positive energy and try and write some great songs. That's the way - if you want to take U2 out, the only way you're gonna do it is by writing better songs than us!"

Over to you; the gauntlet has been thrown down.