It's not a fine line and it's not a gray area. What he did was illegal in the US, he's resident in the US, and it's US laws under which he's being charged. It doesn't matter if some SR activity was legal. It wouldn't even matter if most of the activity on SR had been legally. It's knowingly facilitating the illegal activity which is the issue here.
They're not trying to prosecute him on the basis of people using SR to sell goods legal in their own jurisdiction domestically. He's not being charged by other nations - although he's almost certainly broken the laws of other Western nations as well.
What's going to be more interesting is how the vendors who have been arrested are charged. Here, drug offences are generally dealt with at state level but once you throw importation into the mix it's a much more serious ball game. A drug sale which would attract one penalty if it was wholly domestic can potentially attract a much more severe penalty if the buyer has imported the drugs from overseas.
Are the authorities going to "throw the book" at people by using the most serious charges possible or will they use the more mundane laws they'd apply to domestic sales/purchases?
The charges in the two jurisdictions aren't the same. In fact there are bound to be other US jurisdictions in which he could also be charged.
It's likely that the authorities will work out between themselves which jurisdiction should proceed first. NY seems to have the more compelling evidence in relation to SR and Maryland has the more compelling evidence in relation to murder for hire/attempted witness murder. Of course the charges laid so far are only the beginning and there will most likely be many more.
The California lawyer was only ever going to be representing him until he was removed to NY (or Maryland, but Maryland didn't ask for his removal to there). He's entitled to a public defender in NY just as he was in California. It would have been kind of silly to pay a Californian lawyer when the case itself was never going to take place in California and there was zero chance of him not being removed to NY. Defending him against the charges was never going to be the job of a Californian lawyer.
Some vendors weren't so great on the not keeping customer details thing. Also, there are some pretty weak PGP keys out there. How SR was supposed to operate in theory was considerably modified by the human factor.