The fine print suggests that Australians would be denied access to illegal or pornographic content by default, but would be able to opt out to enable them to access adult porn. In other words, they would no longer have completely unfettered access to the web, including presumably illegal sites.
The grumble from some quarters seems to be that the Oz Government will decide what is legal or illegal and this may result in over zealous censorship (for example ultimately including things the government deems bad publicity for themselves).
Personally I think the Australian Government's scheme is a good idea because I wouldn't want my kids accidentally coming across seriously bad stuff, but I can see a situation (like in China) where innocent material gets blocked for political reasons.