Just enterprising folks making money out of peoples fears, nothing new there then!
Doesn't offer you any legal protection at all. Offers minimal protection in that it deters the thief from taking a pop at your bag, they would normally go for the 'easier' target, that said some folks would argue that wrapping your bag up in such a manner suggests you have something in it worth taking!
May be a good idea if your travelling during the rainy season with soft luggage it could save it from damage. Not much point wrapping a good quality hard case in it though.
If you're having it done ask yourself about the impact on the environment all that nasty plastic lying around. Ask the vendor if it's biodegradable plastic he's using.