The TP is not illegal. I do believe making money off her image without her permission is.
I suspect that sort of usage is considered "satire" or something, and for all I know, "fair use" may cover it, though that's unlikely.
I'm sure if Palin learns about it, she'll rise above it. It's beneath her dignity to even acknowledge it, though I suspect if she decided to, she could crack a helluva good joke about it. I love her sense of humor and style!