This is legal if you keep it in your confined network, home, or company and if you actually own it.
Any spying activity over the internet is illegal without the users consent, because you don't own their equipments.
"No it is not possible." <---- Yes it is, and it's been done so many time.
Chris means being in the same broadcast (connected with a HUB). This is in a local area network (LAN) and not across the internet.
"Man in the middle" attack. Taking advantage of the way TCP initiate with the three way handshake also known as TCP spoofing.
http://en.wikipedia.org/wiki/Man_in_the_middle_attack