Translation of Qu'ran was always problematic question in Islamic theology. In Islamic world there is doctrine called I'jaz that holds that Qu'ran is miraculous, both in content and in form and that no human speech can match. According to I'jaz Muslims oppose to text from Qu'ran be reproduced in another language or speech. Also there are some words which have a range of meanings depending on the context, so they cannot be translated easily.
In modern Islamic theology, Qu'ran is divulgation very specifically in Arabic, and so it should only be recited in the Arabic language. Translated Quran's are experienced as interpretations of arabic version of Qu'ran and they no longer possess the uniquely sacred character of the Arabic original.
About your question for illegality, I have done some research from books about Qu'ran. First person to translate Qu'ran was Salman the Persian who translated Qu'ran from Arabic to Persian language in the early 8th century. No translations of Qu'ran were made by Muhammad's lifetime. First person to translate Qu'ran to Latin was Robertus Ketenensis in 1143.
So it wasn't illegal to translate Qu'ran, nobody was punished because of that, but translated Quran's in muslim world just haven't got value that arabic Quran's have.