Is this still legal in cricket? And since it was legal, why would people get so upset?
From the law 24 in ICC's Match Playing Conditions PDF: (emphasis mine)
So bowling a ball underarm is not legal. It is considered a no ball unless special agreement before the match 1.
However, at that time bowling an underarm ball was legal but it was against the spirit of cricket. And it was deliberately bowled just to prevent New Zealand hitting a six on the last ball. That's why whole cricketing world was upset for that decision. For more see a Wikipedia article regarding that incident.
1. As per law 24.1(b) in lords.org. However, this is not specified in ICC's match playing conditions.