I know that it is illegal to catch and use graywater in many US states. What states and/or nations have favorable laws for graywater usage?
The Building Regulations for England, and the national (largely voluntary) Code for Sustainable Homes, cover water efficiency and greywater recycling. The calculation for legal compliance includes the ability to achieve compliance by increasing your energy efficiency through greywater recycling, so it is actively encouraged by the regulatory regime.
backflow protection of any public mains supply “back up” connection. They also place an obligation on installers not to allow cross-connection of mains-fed pipework with pipes carrying recycled water, and to clearly mark the pipes to distinguish recycled water from mains derived water
Washington State recently implemented a new set of rules allowing greywater. Details: http://www.doh.wa.gov/CommunityandEnvironment/WastewaterManagement/GreywaterReuse.aspx
In my experience, greywater legislation is typically focused on plumbing and building codes, e.g. "Can I plumb my shower to drain in to the garden?" and not behavior, e.g. "can I take a shower in the garden".
A lot of behaviors are not so much legal or illegal, as outside of the purview of law.