It's illegal to run OSX on a PC but its legal for some guy with free time on his hands to program some drivers for say a AC'97 Codec sound card? Wouldn't using a non-approved peice of hardware fall under the same lines as running OSX on a PC?

Good question, I'm going to say "no." There are any number of third party expansion cards available for Macintosh. Not so much in the sound card area, but as far as USB and Firewire cards. Not to mention all of the peripheral devices available. I don't think attempting to get a particular device to work on your Mac under OS x is the same as using OS X on your PC.

So where does that end? Someone could get it working with their ethernet, CPU, hard drive controller, motherboard... etc. If you change every piece of hardware in your mac one by one is it still a legal mac? NO.
So now we have to define what a legal mac actually is.

Now, come on, TCPMeta didn't ask if it would be legal to make it work with his "ethernet, CPU, hard drive controller, motherboard... etc." So these things are not pertinent to the scope of the original question. It's up to Apple to define what constitutes a breach of the EULA, and if they have allowed other companies to produce expansion cards for Macintosh, then I suppose they have done that. Writing your own software to enable the use of a device under a certain architecture is certainly not the same as modifying someone else's software to work on your hardware.

Radio, I think this is a very good question being raised, and one I think EFiX is destined to get to the bottom of. I have to side againt you thought with my opinions. I don't think its the right of a company to specifically decide who gets to do what with a product they purchase. If I want to put a hemi in my Jeep, thats my perogative, not Chryslers. I see Apple's side of this, but I just don't feel they have that right. When you buy something outright, its yours to do with as you please. Grated there are copyrights and such, but, as long as you aren't reselling for profit, I don't see the issue.

I don't disagree with you at all. However the question is not whether or not its right (I don't think it is), but whether it's legal. In the case of software, copyright law forbids modification of the software in any way for any reason except for those reasons that the copyright holder may specify. I posited that because the person in question (TCPMeta's original post) would not be engaging in modification of any of Apple's intellectual property by writing his own original software, he would not be violating any copyright law.
I believe that we are in agreement about the morality of the thing. I meant to speak only to the legality of is, as was the scope of TCPMeta's query.
Additionally, if EFiX is to get to the bottom of anything, it is likely only to be by way of a costly lawsuit.

yea, software is another issue, but, creating drivers and getting OS X to run on non "Apple" hardware is a very vague line, that I feel has no true merit legally.

Seems like a 50 - 50. I was reading a article in a Linux magazine what defines a illegal Mac. that was the reason for the question.

Heres another one.

How about software? Like say you have a system running 10.4.10 but you're using a 10.4.9's Darwin 8.9.1 kernel instead of the Darwin 8.10 kernel. Would that be a no no? Or running OSX Tiger on a non-supported Mac?

Well, the real breach comes with when you start using Apple Software, on non-Apple branded hardware.

Installing Tiger on my Power Mac 8600 for example, I don't believe that's a breach of a contract. I modified the software for personal use (Or technically, thanks to XPostFacto...) to run on my Apple branded, but unsupported Mac. For example, running ATV software on my Mac Mini wouldn't be a breach, still Apple hardware.

They're clause in the EULA of OS X specifically vouchers Apple branded hardware. If you wrote software for your own machine, to use a specific device, and kext loaded it into your OS X installation, I really don't see that being a breach of legality. I don't even think distributing that file under the GNU is a breach of Apple's contract. It comes into play, if the company in question (AC'97 is Via I believe?) wanted to write an OS X compatible driver. Then they'd come after you.

Creating the software does not necessarily mean that you meant to use it on Non-Apple hardware. You could be adding a second sound card PCI or USB to your Mac Pro. Or perhaps wanted to revive a board with dead on-board sound. Unfortunately, there are tons and tons of grey area with these topics.

I think that would be on the presumption that the company in question had intent to sell the software for profit. Then it simply becomes a issue of licensing. Even then, I think the legality of Apples restricting the software that can be written for their systems is pretty sketchy. Think about the trouble M$ got into during the browser wars.