I do think that many images on people's hubs are illegally used. It can be very frustrating for the original photographer who created a unique picture for his or her website (or his/her company's website) only to find it somewhere else without the person even asking for permission. And yes, it is illegal.
The part that bothers me is that it makes the hub (and hubpages in general) look less professional when that happens. I know not everyone will agree with that, but that happens to be my opinion on it.
People can keep their hubs legal by using stock photo sites or taking their own photos. A stock photo site is basically an 'image library' which people can browse and use. The stock photo site I like the best is www.sxc.hu because it is free and has a large range of photos. Read the restrictions on any photo from there which you want to use - some of those images mandate prior permission from the photographer, but most may be used as is.
Or you can take your own photos. Sometimes you may have to go a little bit 'sideways' on a topic if you don't have the subject matter at hand. For example, in a recent hub about pregnancy, I decided to take a picture of a baby crib and label it 'getting ready for baby', because I wasn't pregnant myself at the time and therefore it would have been hard to arrange for a pic of someone who is pregnant. But I really wanted my own, original pic for that particular hub, otherwise I would have gone with a stock photo site.