Due to lack of existing applicable laws, capital controls and the fact that Bitcoin straddles multiple financial facets the following Bitcoin activities are illegal in Thailand:
Buying any goods or services in exchange for Bitcoins
Selling any goods or services for Bitcoins
Sending Bitcoins to anyone located outside of Thailand
Receiving Bitcoins from anyone located outside of Thailand
To be clear, the Bank of Thailand is the central bank of Thailand -- not the country's Ministry of Finance. Which, as David Meyer of Gigaompoints out, can't simply "make laws," so it would be inaccurate to say the country has "officially" made Bitcoin illegal.
Still, it was a step backwards for Bitcoin evangelists who are pushing to make the Bitcoin an accepted, regulated currency. In that sense, the news is certainly a damper on Bitcoin exchanges operating within Thailand -- Bitcoin Co. Ltd., the company who sought the bank's approval, for instance, announced it is suspending its operations. It also may scare some Bitcoin users to head underground, but it's unlikely to have much effect on the greater Bitcoin community.
Why? Well, the beauty of a decentralized, anonymous currency is, well, that it's a decentralized, anonymous currency. The mechanics of Bitcoin that make it so appealing to users are the very reasons governments find it so difficult to regulate.
As one commenter on Hacker Newspointed out: "Foreign exchange controls are normally difficult to implement and enforce. Control of Bitcoin -- a decentralized, optionally anonymous, virtual commodity -- should be even more difficult. I suspect a lot of Bitcoin trading volume in Thailand will simply go underground."
Here in the United States, a few are making the attempt to get the government to recognize -- and regulate -- Bitcoin. Most notably, the Winklevoss twins filed a new Bitcoin Trust with the Securities and Exchange Commission--an attempt to get the commission to acknowledge the currency. In the meantime, a self-regulatory group -- the Committee for the Establishment of the Digital Asset Transfer Authority -- "will set technical standards aimed at preventing money-laundering and ensuring compliance with laws."
The push for a regulated Bitcoin currency may be down the road. But in the meantime, any attempts to ban or thwart the transfer of Bitcoin is a bit of a fool's errand.