is jailbreaking illegal?

It's not illegal - that woud mean it was a criminal act. The side effects are:

• You will void your warranty and no matter what happens subsequently you are on your own. Apple will not help you.
• You lay yourself open to all sorts of malware and technical problems which can cause irretrievable damage.
• We are not allowed to discuss jailbreaking in these forums and posts attempting to do so get removed, as this one may be.

Jailbreaking is not in itself illegal. But ...

As far as Apple are concerned, it breaks the terms of their warranty and therefore negates it.

But as far as iPhone 4 is concerned, it will be out of warranty anyway. But Apple would still not want to repair it, even as a paid job.