It is not illegal to defame someone. People are defamed in newspapers and other media every day.
Defamation law is civil law, not criminal law. Defamation law varies between states. The law rarely restores someone's reputation and is intended to compensate them financially. Defamation law is expensive and is not really an option for anyone but the rich and powerful. In reality it is often used by these people to stop freedom of speech, especially in australia. There are groups trying to reform Australia's laws. The courts should make people aplogise rather than focussing on compensation.
Whether someone has a case for defamation against you depends to varying degrees on the following:
is the issue in the public interest or was it personal
is it true, did you know it to be false, were you reckless (did you care either way) and was your intention malicious
was the person given a chance to defend themselves
was a retraction issued
did the person suffer any financial loss
If you are a 'man of straw' (ie poor) then no-one would bother taking you to court. Acting anonymously helps too.
basic explanation and guide for people who have been threatened or are worried about what they can say, plus some examples, then some advice on covering your ass:
http://www.uow.edu.au/arts/sts/bmartin/dissent/documents/defamation.html
Some examples (including Eddie Obeid):
http://lists.essential.org/pipermail/hague-jur-commercial-law/2001-June/000052.html
reform:
http://www.hrcr.org/safrica/expression/defamation.html
http://www.mds.rmit.edu.au/law/node5.html
" In practice, the structure of the court system and the media serve the powerful while doing little to protect the reputation of ordinary people. They undermine the open dialogue needed in a democracy. "
" If you are threatened with a defamation action, one strategy is to just ignore it and carry on as before. Alternatively, invite the threatener to send the writ to your solicitor. Most threats are bluffs and should be called. The main thing is not to be deterred from speaking out. The more people who call bluffs, the less effective they become. "
" Just because you are sued doesn't mean you can't say anything more. (Many organisations avoid making comment by saying that an issue is sub judice -- under judicial consideration -- but that's just an excuse.) You can still speak. In particular, you can comment on the defamation action itself and its impact on free speech. It's also helpful to get others to make statements about your case.
A powerful response to a defamation suit is to expand the original criticism. Defamation suits aim to shut down comment. If enough people respond by asserting their original claims more forcefully and widely, this will make defamation threats counterproductive.
Helen Steel and Dave Morris, members of London Greenpeace, produced a leaflet critical of McDonald's. McDonald's sued. Steel and Morris, with no income, defended themselves. They used the trial to generate lots of publicity. Because of the trial, their leaflet has reached a far greater audience than would have been possible otherwise. The whole exercise has been a public relations disaster for McDonald's. "
(from the first link)