I'm no expert on these matters, and I haven't yet looked into it very closely, but as I understand it, the use of 'white phosphorus' (which honestly I'd never heard of before yesterday, or whenever the story broke) is not in and of itself illegal, but it is limited to very specific purposes. So, the use of this material in certain prohibited ways would indeed be illegal.
So the question, then, is whether 'WP' was in fact used illegally. Mark Rothschild says that, according to the Army itself, it was:
What is the truth about the charge that "banned weapons" (such as the napalm-like white phosphorus) are being used in Iraq – specifically that they were used during the November 2004 Battle of Fallujah? The U.S. Department of State has addressed this through its "Truth Squad" Web site, which debunks "misinformation" and anti-American slurs. The State Department's Truth Squad is called the "counter-misinformation team."
As the Truth Squad points out, an important distinction must be made between the lawful use of white phosphorus as an illuminator and the use of white phosphorus as an anti-personnel weapon. The use of white phosphorus as an anti-personnel weapon is against U.S. policy; however, its use as an illuminator is lawful.
...However, the U.S. Army itself disagrees with the State Department and says that it does use white phosphorus as an anti-personnel weapon ... Indeed, Field Artillery magazine puts white phosphorus at the head of its list of useful anti-personnel weapons deployed in Fallujah...
Ultimately, the Bush administration cannot continue to hold out what are essentially two versions of the truth about white phosphorus.
FYI, FWIW, etc.
UPDATE: In the comments, Blake suggests that Rothschild may be confused. We report, you decide!