At this point, the legality of bitcoin remains largely untested. To date, there have been no legal actions brought against any bitcoin exchanges (which would likely be the first place for the legality of bitcoin to be tested, rather than end users) and multiple bitcoin exchanges are seeking legal clarification regarding the jurisdictions they are operating in.
Some non-profits including the EFF have chosen not to accept bitcoin at this point in time because of untested legal issues.
In the United States there is no existing legislation that explicitly makes bitcoins or bitcoin-like currencies illegal. The closest legal challenge at the moment seems to be the anti money laundering laws which require you to "know your customer" by retaining personal identifying information on people you exchange monetary instruments with (in amounts greater than $1000, per day).
The (US) Law Library of Congress has published a report "Regulation of Bitcoin in Selected Jurisdictions" dated January 2014 and addressing the status in 40 nations plus the EU. This may currently be one of the best sources you can hope for, except if you're interested in the status inside the USA itself or some very small economy, maybe.
Since then, it was reported on February 7th 2014 that Russia "bans Bitcoin," based on this official Russian statement from February 6th 2014. Whilst going to a less direct source such as media reports obviously risks getting an incomplete or otherwise altered message, one way to have this interpreted into English is to read Russia Today's English-language article on it, "Bitcoins cannot be used in Russia - Prosecutor General’s Office."
I doubt any country has legislation that actually outlaws the use, existence, etc., of any virtual currency.
However, existing legislation obviously applies. I've tried to learn some aspects of this for a few big countries. Since there is no legal precedent, it seems hard even for lawyers to answer such questions. Here are some main points:
Financial Institutions
Handling Bitcoin for more than personal use (as judged by local law, not by you, which could be triggered simply by handling more than pocket change) or as payment for goods (be it personal or as a merchant) can potentially make you fit definitions meant for financial institutions. In many countries, that seems to trigger not just costly and elaborate requirements for getting licensed (or somehow exempted, which could involve arguing it out with regulators, as the Bitcoin Foundation is currently doing in the U.S.), but also lots of anti-money laundering and anti-terrorist funding provisions. Basically, most countries expect you to very proactively spy on your customers, report your findings to the government, and to lie about it. Details vary; in the U.S., Federal law prescribes just exactly how you have to lie even when subpoenaed about this process; in Germany, it is sufficient to shut up about it and lie to your customers if they start asking questions. Then again, in the U.S. the Federal government seems, at least as far as it is codified, happy to be kept informed, whilst Germany requires you to stall some transactions whilst the government makes up its mind about whether to allow you to proceed.
Some more background: If you want to do more than just mine, purchase goods using Bitcoin, or sell goods for Bitcoin, you are likely viewed as a money service business in the U.S. (or its equivalent in many other countries), at least by some of the state and federal agencies in charge of policing aspects of that. Note that this, like almost everything, can naturally be disputed; the Bitcoin Foundation is doing just that). Anyways, if you accept being a MSB, in the U.S., Federal Regulation 31, Part 1022 triggers, of which Section 320 Letter d Item 1 tells you just how to deal with subpoenas that would reveal your spying on your customers [hint: don't comply other than pointing this rule out, and promptly inform the government agency associated with finance, FinCEN].
As far as I can tell, it's really no different from handling other dirty things like dollars or euros that we all share with both bad and good guys.
Taxation
How do you (have to) share proceeds in Bitcoin with the taxman? Details vary, but the basic idea is that either your Bitcoin will be counted as money or a good. As with all issues, the path of least resistance is to go along with what your national government agency thinks best. In the UK, I believe there was some statement by HR Revenue arguing to treat Bitcoin the same way as shop's gift certificates are treated, which I believe means tax is only due when they are used for a purchase. In Germany, at least the bank regulator sees Bitcoin as units of denominations for invoices (but not as a currency), which presumably will mean that the taxation agency might view them as taxable like money---but then again, it rarely happens that different agencies find a logically consistent view on these things.
Illegal Content
Your hypothetical example of child porn or pirated content in the blockchain obviously raises issues. Why don't you post another question about the legality of it in different nations in the first place? Jokes aside, I think you will find that in some nations you'd better not even download sections of the blockchain that may contain illegal content in the first place, whilst elsewhere you are mostly fine as long as you can demonstrate that you have built-in appropriate filters to prevent passing such data on to others. Maybe this is an area where it could be appropriate to hire a lawyer who could, in the even more hypothetical case of this both occuring and you being accused of playing an illegal role in it, argue that since people do not tend to view the blockchain directly, what you are serving is just computer data, not human-viewable porn?