Not illegal at all. According to most byelaws, you can use up to three hooks on a rig. If you couldn't, the fly anglers at ressies would all be banned.
I'm not in favour of three-hook Pennells, but I've used a two-hook rig many, many times, mainly for eels and perch when using big lobworms.
They work really well when the fish are nabbing the bait. I usually use a strong dry-fly hook slid on to the line and the second hook tied on beneath it. The dry fly hook (which sits in line because off the offset eye) can be stopped with a Powergum knot if you want a bigger gap between hooks. I suppose you could also slide a short length of rigid rig tube between the two hooks.
I have seen them looped on but I haven't tried this method.
