Interesting as Is it actually illegal to TeX `texbook.tex`? is (I'll even admit to voting for it initially), I'm no longer convinced that it is a suitable question for this site. There are two parts to the question: is it legal to TeX the TeXbook and is it moral to TeX the TeXbook.
The first of these certainly has a definite answer (well, one per country), but no-one on this site is obviously qualified to give it. I don't see any country's courts accepting the plea: "I read on tex.SX that it was probably okay so I TeX'd the TeXbook.". The point I wish to make is that an answer on tex.SX ought to be easily verifiable. There is no "minimum working code" that I can run on my computer to check if it is legal or not for me to tex the TeXbook:
pdflatex -only-if-legal texbook.tex
fails for some reason.
The second does not have a definite answer (at least without assuming the Axiom of Choice) and will vary from person to person. It will probably also vary significantly by whether or not the condition is Knuth's or the publisher's. In the mathematics world there has recently been a considerable amount of discussion on a very similar incident (look up "Grothendieck" if you're interested). I'm not sure that this kind of discussion is really edifying for this site.
There is also the precedent to consider. For the above reasons, I don't think that I would like to see more questions on copyright and legal issues.
As a moderator, I can't "vote to close" without being dictatorial. So consider this a virtual "vote to close" to see whether or not I'm being too British or not.
 The stereotype being that the Brits are the only ones in the EU who actually obey the rules, I think that this originates with Yes, Minister.