No one (that I'm aware of) is breeding dogs to wild wolves. It is a fairy tale that people stake their dogs out for the "lone wolf" to come along and impregnate her. Wolves do not breed to strange, unknown animals.
In several states, pure wolves are legal to own with the proper permits. The pure wolves that I have seen in captivity (for the most part) have been socialized to humans and I would not consider them to be a typical "wild animal". Sources for pure wolves have been zoos and game farms prior to 1975 but the genetics are still being used in the wolf dog lines today. Most of the wolf dog breeding being done today is wolf dog to wolf dog and not wolf x dog.