It would be illegal to use it to copy games you don't own to the drive. As the owner of over 120 legit PS2 games I can state that I have no illegal intent in my interst in HDLoader.
Just to compplicate things: What if you install a drive with HDLoader and then sign up for the Blockbuster $50 for three months unlimited rentals deal. If you copy a rented game to the drive, return the disc to Blockbuster, and then remove the hard drive copy when the three months are expired, is there any violation?