Is the following legal or illegal in Australia:

syd-bme-mel-hba-syd?

A few years ago I did syd-per-mel-syd but this now comes up as invalid in Mileage Monkey.

Illegal.

See the rules on the oneworld site -

http://www.oneworld.com/ow/air-trave...world-explorer

Footnote 5 says -

"Within Australia only one flight is permitted between Perth and Brisbane, Cairns, Melbourne or Sydney or between Darwin or Broome and Melbourne or Sydney."

Although the sentence construction makes it a bit hard to understand (is it only one flight out of the first group and one flight out of the second group or only one flight out of only one of the groups?), as you want to do two flights out of the second group (" ... Broome and Melbourne or Sydney), it's not allowed.

The PDF file on the oneworld site describes it as -

Within Australia - only one nonstop/single plane service flight is permitted between the following points:
BNE/CNS/SYD/MEL - PER
MEL/SYD – DRW
MEL/SYD - BME
EXCEPTION:
A. No restriction between SYD/MEL - PER for passengers originating in PER
when in conjunction with travel to/from JNB/BOM/SHA/PEK.
B. No restriction between SYD/MEL – PER for passengers originating in New
Zealand when in conjunction with travel to/from JNB.

Until August '05, MEL was not in the resticted transcontinental list. (I booked a MEL-PER-CNS-MEL routing, this is no longer valid.)

I am going to OZ on a oneworld - the travel agent has just told me that

LHR-JNB-HKG-DEL//BOM-BKK-SYD-AKL-MEL-PER-CNS//SYD-SCL-LIM-GRU-EZE-LHR

but when I type it into mileagemonkey it says it's invalid on the Max 1 segment(s): Sydney/Cairns/Brisbane/Melbourne - Perth rule

I have pointed out the rule to her but she says it is wrong...any thoughts?

Your TA is wrong. S/he will find out when s/he tries to ticket it.

Or it gets through and he later gets slapped on the wrist.