It is well known that non transaction related information has found its way into the block chain. This raises multiple questions: (1) How was it done, and is it still possible (2) If someone where to introduce contraband into the block chain, this would be propagated to all copies of the ledger. Could make it illegal real quick. I know my questions are from a devils advocate - not because I don't like BitCoin, to the contrary, but I want to fully understand its risks as well. Thanks
It is still possible to embed data into the blockchain, and it is actually fairly trivial. But don't do it. It is rude and detrimental to the network as it takes up resources to host your random data on all full nodes in the network. The polite way to do it is to create an OP_RETURN output, but that only allows up to 80 bytes of data. The impolite way is to just put your data into the output script since output scripts are not validated until they are spent. But that is impolite as the output is not provably unspendable (and thus can be pruned from the UTXO set) so it will take up full nodes' disk space and memory.
Yes, it's absolutely still possible; nothing has changed to prevent it. It's not clear how you even could if you wanted to; because of the consensus requirement, you would need some universally agreed, computer-testable standards as to what sort of data was unacceptable. Any such standard would surely be extremely easy to circumvent.
Anyone can insert 80 bytes of arbitrary data in the block chain with OP_RETURN. More than that requires the cooperation of a miner, but is otherwise not technically difficult.
Bitcoin Core, and perhaps other clients, now include an "obfuscation key" so that the blockchain data is masked in a simple way when stored on disk, to avoid triggering virus scanners and the like. So that avoids a few of the annoying consequences.
The legal consequences obviously would vary around the world. In some places, perhaps it would be a defense that you didn't intentionally seek out the data. On the other hand, a jurisdiction that really wanted Bitcoin to be illegal would probably find an excuse to do it, regardless of what data was in the blockchain or not.
Not an answer, but a couple of interesting links for researching: