Yes, its perfectly legal, if it wasn't, I am sure Microsoft would have already shut them down. If you spent $500, you are free to install it on the OS of your choice, although recent versions of Office such as version 2010 and 2007 and software such as Windows Live Essentials probably won't work in WINE.

Is Wine Linux illegal?

No. Wine is a reimplementation of Windows libraries and system calls, written from scratch using Microsoft's own API documentation and some clean-room reverse-engineering.

Does Wine still work on Linux?

Wine is primarily developed for Linux and macOS, and there are, as of July 2020, well-maintained packages available for both platforms.