I decided to be a searcher and find out any and all information I can find about engine swapping... and these are the sites I came across. I dont know enough about the SR-20 to know if its approved by the EPA, but that is basically what it comes down to.
Are you putting in an engine that is approved by the EPA?

http://www.epa.gov/compliance/resour.../engswitch.pdf

I also found out why this is so damn confusing... It seems that there is a difference on if the car was sold in the US or not. If you buy car in the US with the "illegal" engine in it, there isnt a problem. So, importing the entire car is ok, as long as the car passes emissions. They are stopping the swapping of "illegal" engines into cars that then won't pass emissions. Since the EPA has records of each engine that doesnt pass emissions, then they are considered "illegal" engines. But from what I have found as long as you can get it to pass the emissions laws, then you are ok, but you would have to restrict an SR-20 alot to get it to do that...

This is also a very interesting article on what is legal and what isnt:
http://www.chp.ca.gov/html/streetlegal.html