Why was cheese illegal on Ceres?

No-one said cheese was illegal, per se.
It's like claiming Scotch Whisky is illegal in Scotland.
What was most probably illicit about it, in a society where even air has a price, was that it was being made unlicensed & therefore untaxed.

The conversation in which it's mentioned is really used as a bit of camaraderie, joking between friends about some different aspects of their dissimilar pasts. It starts with Kamal apologising for the lack of real cheese & tomato in a lasagne he's made for them.

The story as it develops is that there was once a lot of 'unlicensed' cheese on Ceres - being traded by a "black-market curd-cartel on ninth level" - but the police raided & confiscated the entire stock… then stole it from evidence & ate it themselves.
The story itself isn't that important, it's really just a way the crew become closer & bond, part of a far larger long-plot arc of their developing relationships.

I found a transcript on Forever Dreaming but it's a bit lacking in who is speaking at any given time.