Yes, USC-Illinois turned out to be a terrible game but probably any team that was picked to face USC in the Rose Bowl was going to get blown out. That year, USC lost to Dennis Dixon and had their seemingly-annual loss of focus when they lost to Stanford. However as Michigan knows from experience, USC is always focused in the bowl games.
The first question we can ask is whether Illinois was deserving of one of the BCS at-large spots. The answer to this is actually a fairly strong yes. Here's how it broke down (according to BCS rankings):
#1 OSU and #2 LSU were in the championship game
#3 Va Tech was slotted for the Orange Bowl
#4 Oklahoma for the Fiesta
#7 USC obviously for the Rose Bowl
#9 West Virginia was the Big East champion (but not tied to a bowl)
#10 Hawaii was automatically an at-large team.
So, there were 3 at-large spots to be filled with the following eligible teams:
#11 Arizona State
#14 Boston College
Only one of Georgia/Florida and one of Missouri/Kansas could get picked. So that left Arizona State, Illinois and Boston College fighting for one spot. As Black Shoe Diaries talked about, http://www.blackshoediaries.com/2009/5/30/893422/prepare-yourself-for-p… it is completely reasonable to pick Illinois over those other teams.
Now the Rose Bowl could have taken another team, but it wouldn't have been Georgia since the Sugar Bowl was certainly going to be lobbying to keep an SEC team. That means they were deciding between Kansas, West Virginia, Hawaii and Illinois. Any bowl game is going to avoid Hawaii at all costs so the Rose Bowl is down to Kansas, West Virginia and Illinois. Here are their results against AP-ranked and other notable opponents and what their OOC schedule was:
|Team||Wins vs Ranked||Losses vs Ranked||Other Notable Opponents||Non-Conference Schedule|
|Kansas||none||#7 Missouri 36-28||None. They didn't play Texas, Texas Tech and Oklahoma||Central Michigan, SE Louisiana, Toledo, FIU|
|West Virginia||#20 Cincy 28-23||#23 USF 21-13||Lost the last week of the season to Pitt 13-9||Western Michigan, Marshall, Maryland, East Carolina, Mississippi St,|
|Illinois||#1 OSU 28-21, #18 Wisconsin 31-26||#7 Missouri 40-34||Beat Penn St (receiving votes team) 27-20||Missouri, Western Illinois, Syracuse, Ball St|
So Illinois had the best and second best wins of the three teams. They also had the best loss (or at least tied with Kansas for the best loss). Kansas only had one loss, but they literally did not play any good teams except for losing to Missouri. None whatsoever.
Also, Kansas and West Virginia lost their last games of the regular season while Illinois beat Ohio State and then creamed their rival Northwestern 41-22.
So, although we know in hindsight that the Rose Bowl should not have picked Illinois ("we should have had hindsight"), it actually was a reasonable pick at the time.