I think most are flying "technically illegally" as of 8th April 2012.
What you believe depends on your own interpretation but I agree with Peter 337.
On a interpretation scale of one to ten, some will be at 10 and consider the rules and derogations allow a pilot to fly on a FAA PPL/IR until 2014 anywhere in EU. Others will be at one and consider no further flight in N registered is allowed in EU.
Bookworm has a good agreement but so does Cathar.
Where are the authorities on the scale of one to ten? Maybe Germany is at one and will soon arrest pilots flying IR on FAA licence? UK must be at 10??
We are in a crazy situation but at least we can still fly N registered aircraft in EU if we have the correct licenses so it is not as bad as it could have been. Maybe we should be thankful for that?