What exactly the "illegal content" is remains to be seen, but speculation ranges from the obvious candidate of child pornography, to a broad range of Refused Classification and X18+ material and possibly some R or MA content. This largely seems to depend on what independent Senator you are attempting to buy off.
Cynicism aside, this is an issue that should be of interest to Australians who do not want the government to decide what they can and can't view on the web. Of serious concern is how tempting it would be for a government to use this tool to it's own purposes. I'm not sure that it's quite a 'Ring of Gyges', but it is potentially pretty close.
Given that it is too late in the evening for me to go on further I'll leave you to read up on this in your own time. Overclockers Australia is keeping a wiki on media related to this issue (note the massive explosion of interest when Senator Conroy let slip in Senate Estimates in mid October that it wasn't optional).
Warning, shameless self-promotion approaching: I've also managed to bang out a few odds and end of my own analysis as well at Philosophy Hurts Your Head. Sites such as NoCleanFeed are also worth a look.