Okay, so let's take this logically. Why is xoxing illegal and taboo? Because the public (especially the human public) don't want loopy digital sapients replicating themselves all over the place, taking over the Web by weight of numbers and all demanding voting rights. It's creepy and dangerous. The issue is most obvious with ghosts, which are citizens in most places, but the principle will also apply to citizen SAIs.
However, with low-grade infomorphs with limited volition, that's less of an issue; they aren't going to try to conquer the world or demand a vote each. There are copyright issues (and the more expensive the software, the bigger the copyright issue), but otherwise, no problem...
Unless those NAIs and LAIs are going all emergent on you. In any good Emergent AI horror story, the evil infomorph is going to copy itself into multiple shells and turn the entire smart environment against its victims. And why should a good, compliant AI, which should have been programmed with solid DRM protections, want to copy itself or let itself be copied? That's the first sign that it's turned emergent-evil!
Note that shadows (and eidolons) are essentially AIs, and will largely be treated as such. However, they are also emulations of human personalities, which means that they emulate human flaws and the potential for human criminality; they aren't programmed for honesty, and people know this. If one of them xoxes itself, or lets itself be copied, alarm bells will go off in a lot of people's heads. (Sometimes literally. Gotta love implants running permanent watches on news channels.)
So, maybe, strictly speaking, "illegal xoxing" just means "xoxing of ghosts and citizen SAIs". However, unrestricted copying of any AI will be seen as probable digital piracy at best, the sign of an Emergent AI in revolt (i.e. as a harbinger of the apocalypse) at worst. And "xoxing" can be used as a generic term for this. It's a bit fuzzy, but then it's slang, not legalese.
By the way, dilaterals (Cities on the Edge, p.74) may be referred to as "biological xoxes" by people who dislike them. Also, yes, some people think that the fear of xoxing is just a symptom of an outdated and neurotic attachment to archaic and meaningless concepts of "identity"; Cities on the Edge, p.71.
(Phil Masters, 2011.)