Yes and no, I did it myself to get a few apps that aren't available on itunes. You should know that it will void you warranty but it isn't illegal. I suppose you could mess up your ipod, so make sure you know what your doing before you try.
Apple updated their user agreement recently to state that it is In fact illegal now to jailbreak your iPod. Look at the apple forums. Or if you want to search through 100+ pages of the user agreement you can. ;)