...compensation received by salespeople for products they themselves buy and use, and those bought and used by other salespeople within their organization, is a legitimate, legal and ethical practice and not evidence of illegal pyramid activity.
Somewhere along the way between 1979 (FTC vs. Amway) and now, MLM had lost its soul along the way, by forgetting about retailing, but instead, embraced "self-consumption" and fudging numbers, and probably a bit of willful ignorance, i.e. we don't know about how much we retail because if we know, we may find ourselves illegal.
Part of the cause is the rise of the recruiter-MLMer, previously identified in "6 types of MLMer", and they helped PBPS along by playing loose with the rules.
But first, let us discuss what is the "ideal" MLM, and how far had the modern MLM wandered from that ideal.
The "Ideal" MLM
In an ideal MLM, the company has virtually no middle or low management. Instead, it has a sales force. Start small, a few dozen people, who go out and push products in party plans, or face to face. Soon, a few natural leaders were spotted, and those are promoted to help their fellow sales team members to achieve, to lead, to train, and to manage the team. They receive a performance based incentive: the better his/her team does in selling the product, the better his/her bonuses are. And all sales force benefit because there is plenty of retail. It is the PRIMARY concern of the "seller" MLMer. S/he will teach sales techniques, closing techniques, and so on and so forth.
The "ideal" MLM emphasize sales, so recruiting a customer is the LAST thing they want to do... Unless this customer is so helpful, s/he is de facto member of the sales force. S/he had made multiple referrals. And most people, let's face it, are NOT good sales people. People you sell to are not necessarily people you want to work with. You'd be lucky if you manage to find ONE true salesperson every dozen people you meet and pitch the product to. Part of the existing sales force's job is to spot the valuable recruits out there, and add them to the sales force, and they want people who can really sell, instead of filling up the ranks with any warm body with a wallet.
The modern "recruiter" MLM is nothing like this.
The modern "recruiter" MLM
In a modern "recruiter" MLM, company has tons of management of every level (we'll explain why in a minute). Instead of a sales force, it has recruiter / customer hybrids, and recruiters out recruiting even more recruiter / customer hybrids.
Instead of customers who like the products and want to buy them, modern MLM is full of "customers" who had been teased with dreams of riches, and then seized with "all you need to do is buy your stuff, then find more people like you, and you can be rich like me", and turned into recruiter / customer hybrids who, if they recruit enough, turn into pure recruiters. They don't care if you can sell stuff. They just care if you can BUY their stuff. So you don't even know why you joined... Did you join to make money, or did you joined just because you like the product? Why can't you just BUY the product (without joining?)
The emphasis is on the opportunity, not the product offered. As a result, all sort of bad claims were passed along, including misleading income claims, misleading information about the company or its founders, misleading health benefit claims, and so on and so forth. So much so, company had to hire people for "compliance reviews" (i.e. is what they are saying going to get the company in trouble?)
The net result is while a lot of products are moved, there is little actual retailing going on, and thus, the modern recruiter-based MLM is essentially a product-based pyramid scheme.
Prospects, not customers
In a traditional MLM, the MLMer sees everybody as potential customers, and that is often quite annoying ("All you have to do is change your regular store detergent to my _____ detergent!") Recruiter MLMers are even worse, because they consider everybody they meet to be potential RECRUITS (i.e. downlines). And thus, they have an extra coercion tool: greed. And that's where the misleading claim of potential income comes in.
Regarding claim of potential income, most people online are doing it wrong, and potentially illegal. Some MLMers are fond of showing off a check (which is obviously the largest check they got to date) or some sort of a screen-cap proving that they made X sales amount or was paid $X in commission. However, such claims are ILLEGAL according to FTC, unless you also explain that your payment is not typical and what the typical commission check is. Same with live meetings, rallies, and seminars. EVEN TWITTER MESSAGES are subject to this rule!
Then you run into potentially illegal claims of product efficacy and application, with vague hints of "it's good for you" from the company obviously not enough, so the distributors started making up stuff about how good their stuff is, and to denigrate their competitors as *crap*. The youngest MLMers are often guilty of this (must be the hormones?)