Lucy, there's a big difference between illegal and adult themed.
I accept the local country laws should be accepted by anyone that participates in the country in question.
Google's definition in the AdWords and AdSense examples we've seen recently are up to google. As i understand it, it's not the illegality, but it's against the rules the company laid down. It's the same concept as the guidelines we have here at WebmasterWorld. Break our rules and suffer the consequences. It's up to us to interpret our guidelines, in the same way that Google has laid its down and we have to play by its rules.
The problem with this proposed block is that it's down to interpretation. In the instance of the UK's proposed rules, who decides what is and what is not acceptable? It's all the borderline stuff that is going to get swallowed up, i'm certain. Which would mean that there's going to be many people being stigmatised by having to accept the adult content option when they only want to view adult material. For example, I can imagine health-related sites falling foul.
It's going to be difficult to manage, imho.