It's legal to the law of course, but it's not following the rules for webmasters by Google. If you buy the link on a website that Google recognizes for selling links, you might be up for some low rankings in Google for a long time (few months).
banner ads should be nofollow-links too Google minds because they use links to a webpage to determine how important a website is. If you buy links it means you buy importancy. It's much like buying votes with elections. Think of links as votes and you will understand the whole linkdevelopment process.
Not illegal by a longshot. Probably more grayhat then blackhat, and google definitely frowns on the practice.
Of course it is legal. You are justing buying ad space. But if you would like to follow the rules of the Google SEO game, you may not want to do so (or you will at least do it smartly).
I always thought that google didn't want people to buy buy/sell links because it would compete with adsense. Selling links a way to make money and Google is removing another source of income for webmasters and that's just wrong. I guess once you are the big dog then you can make up your rules.
It may also not be legal to the law in certain cases. For example if you are endorsing a product and not revealing that it's an advertisement you are being paid for, you might be violating certain FCC guidelines in US. I am sure similar laws exist elsewhere.
If you buy links for traffic that's fine for Google. However if you buy links for PR and SERP... Google doesn't like that.
It is perfectly legal. If your website does not depend on search engine traffic, you can always buy traffic from other websites in your niche by purchasing text links. however beware if you depend on Google for traffic, G hates purchased text links. -Knewthis?
I have been known to purchase links, you just have to be careful not to purchase links on sites that have the text "sponsored links" or a site that has been known to sell links in the past. The way I do it is by finding a site that has a high pagerank and then simply emailing them to ask for a link and offering them a price in the process. Works great for me!
If you're buying them purely for seo purposes than I don't think it's worth the risk - if google picks up on it then you would of been wasting your time and money. If just for marketing, then buying nofollow ads could be a good thing.
Google doesn't like the links purchased for manipulating rankings, but they are okay with links purchased for advertisements (these are generally no-follow links).
I agree with statement that google would mind. Google would know of any tricks or means to manipulating it's ranking algorithm. Soon or later. So why don't you use the natural ways...
Goggle doesn't aggree with buying text link but as long as it doesn't get noticed then it perfectly alright. I have seen this in webpronews an interview with Mark Curtiss about link buying.