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)
24.1 - Mode of delivery
Law 24.1 (b) shall be replaced by the following:
The bowler may not deliver the ball underarm. If a bowler bowls a ball underarm the umpire shall call and signal no ball, and the ball is to be re-bowled overarm.
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.