Although there is specific legislation relating to lotteries, the general principles of contract law still apply.
If someone enters into a contract under which, in return for the appropriate payment, they have the possibility of winning up to 5 prizes in a draw, the other party in the contract is contractually obliged to ensure that the entrant receives the opportunity to win up to that number of prizes. If the tickets remain in a strip, there can only be the opportunity to win one prize, which means that the seller has failed to meet their contractual obligation. (In short, yes they are acting illegally).
Incidentally, some people sell tickets at, say, 20p each or a strip of 6 for �1. This is also illegal because the legislation relating to lotteries states that every entry into the draw must be sold at the same price.
The difference, however, is that the former offence is a civil matter (because it breaches contract law) whereas the latter offence falls foul of criminal law.
Chris