As for the legality -
Sky only licences the material (movies, sports, etc.) they buy for re-transmission into the UK and Northern Ireland. If they were to permit viewing outside of this territory, not only would they be in conflict with the redistribution rights that they have bought, but also programme providers in other countries may get upset that their territory is being infringed. The same is also true for the free-to-air channels - the BBC for example makes a healthy living out of selling home-made material to other countries, and would not want to lose this source of revenue by allowing it to be freely available in other countries. It has been suggested that additional restrictions imposed by the BBC have caused Sky to tighten up their own distribution system to further enforce UK-only viewing.