I need to get rid of the system bar on Android 4.1 tablets
That is not possible, except via rooted devices and/or ROM mods. Moreover, the user needs this bar to be there, otherwise they have no access to the HOME and BACK buttons.
Would I really have issues legally though if I were to root them?
StackOverflow is not a law office. Please consult with qualified legal counsel regarding such concerns.
is it possible to change the status bar icons and functionality?
That is not possible, except via rooted devices and/or ROM mods.
I have read that 4.2 adds some fullscreen functionality for apps. Is this true?
Not exactly. The bottom navigation bar (HOME, BACK, RECENTS) can be hidden, but they will return as soon as the user touches the screen. The top status bar (signal strength, battery level, etc.) can be removed via a Fullscreen
theme.