I don't think it's illegal, but if you are injured in a wreck you may have an issue with your insurance denying you coverage since you disabled a safety device.
That said, I removed the airbag in my WRX and my Miata in favor of a removable racing steering wheel. But neither of them are my daily driver, and I have additional safety gear (seat, rollbar, harness) in the cars. For me, it was a matter of being able to get in/out of the car that made me go with the racing wheel... the smaller size is just a nice benefit.
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