Heh, I was thinking you were a retailer. It actually makes a lot of sense for exchanges to have printable bills. I'm surprised mtgox hasn't thought of this for their redeemable codes.

"Whoever fraudulently alters, defaces, mutilates, impairs, diminishes, falsifies, scales, or lightens any of the coins coined at the mints of the United States, or any foreign coins which are by law made current or are in actual use or circulation as money within the United States; or whoever fraudulently possesses, passes, utters, publishes, or sells, or attempts to pass, utter, publish, or sell, or brings into the United States, any such coin, knowing the same to be altered, defaced, mutilated, impaired, diminished, falsified, scaled, or lightened- Shall be fined under this title or imprisoned not more than five years, or both."

This has been interpreted to apply to all moneys. So yes, it is illegal, but it's not enforced unless you are trying to counterfeit money. That's where the word fraudulently applies in the law.

I thought the same thing, but WheresGeorge.com does it. However, after looking into it still illegal.

"Defacement of currency is a violation of Title 18, Section 333 of the United States Code. Under this provision, currency defacement is generally defined as follows: Whoever mutilates, cuts, disfigures, perforates, unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt issued by any national banking association, Federal Reserve Bank, or Federal Reserve System, with intent to render such item(s) unfit to be reissued, shall be fined under this title or imprisoned not more than six months, or both. "
http://www.moneyfactory.gov/historicallegislation.html

Would printing BTC on them be 'mutilating'?

Unfit to be reissued? If you use holograms I'd think yes. Otherwise?