I haven't used airbnb but after reading some of the comments here, I looked up the airbnb site to check if they have tools/features which try to address the "I am renting to a total stranger/I am renting a strange place" issue - http://www.airbnb.com/safety#reputation - I guess these tools could be improved/enhanced.

But, just because something doesn't follow an established pattern, doesn't mean its illegal. It would make sense if a community decided to add a "no airbnb" clause to their bylaws/rules - but the govt picking and deciding what is abuse of resources and what is not doesn't sound practical - esp when the resource usage of an airbnb unit is no different when it is rented out versus the owner(s) occupying it themselves.

If there can be things like credit-default-swaps, I don't see why the insurance industry should not come up with instruments for this kind of a market - where there is a market, there must be a way.