Is it legal to refuse cash? I think there have been rulings that state that it's not, but now that I think of it, airlines have had "cashless cabins" for awhile now.

The "explanation" is lame. Yes, businesses have absorbed these fees for years. In general people spend more freely when they use plastic and it significantly reduces the risk of having large amounts of cash around (robberies, employee pilfering, etc.), so overall I'd say they benefit. Now, though, they're adding it explicitly and most likely have not reduced their base prices to offset it.