Did President Obama's Director of National Intelligence declare that the National Security Agency's secret domestic wiretapping wasn't illegal?
Depends on the meaning of the word "illegal." Blair, in his first speech since becoming the head of the U.S. intelligence community, told a reporter that the the program, known by the code word "Solar Wind," wasn't illegal.
Think of Blair's institutional interest here. His National Security Agency still gets raked over the coals for carrying out the orders of the executive branch; the policy makers have already been drummed out of office, and whatever the NSA did, they carried out the law as it was construed at the time. Whether the legal rationale was appropriate is a different matter, and one that Blair isn't qualified to answer. You'll note that Congress later ratified much of the legal rationale while trimming the program of its excesses and instituting a new level of checks on the wiretaps. An official familiar with Blair's point of view said that he did not mean to express an opinion on whether the program was "legal" in the sense of the interpretation-independent constitutional reality. He certainly did not intend to suggest that NSA employees could carry out surveillance was "illegal".
Most likely, Blair is just tired of the NSA getting stigmatized for carrying out the wishes of policymakers, even if he agrees that the policymakers circumvented the law. If culpability were to be ascribed to every NSA employee who participated in the program, had reason to know it was probably illegal and didn't blow the whistle (through mechanisms unknown to most NSA employees), then the government ought to prepare for 1,000 prosecutions or more.
The problem with Blair's remark is more about the difference between the Platonic legality of the Terrorist Surveillance Program during the Bush era and the ability of policymakers to correctly discern the actual, real, answer to whether a certain practice is legal. It's a hallmark of the Obama era that reasonably certain truths are pursued openly, and that the preponderance of the evidence and scholarship outweighs the vagaries of an individual's interpretation of the law. The Obama doctrine seems on first appearance very formalist in this way. The President made an example of the Office of Legal Counsel memoranda precisely because they so clearly violated this reality principle; the law was changed around to fit the circumstances. In Obama's world, there seems to be a capital-T truth when it comes to the legality of the program. And so Blair's acknowledgement of the old Platonic rationale was ill-advised.
Give with one hand and take away with another: the ACLU argues today that the Obama administration is changing the law to prevent the pursuit of justice... that it is using the mechanisms of the executive branch to prevent capital-A Accountability in order to lay the groundwork for a more lasting, more balanced approach to national security and civil liberties.