Good question. Dictionaries only list illa as an adverb and you cannot use it attributively, so it is an adverb. But if you'd replace it with dåligt here, people would say that dåligt would be an adjective in the -t form in congruence with the subject det. Personally I've always thought there's something fishy about the latter analysis. I can't tell you anything conclusive though, at least not at the moment. Maybe someone else can enlighten us.
Buy the way, the two tack's in the above answers bring me to the following question: I seem to remember that starting from the first lessons duolingo always offered or asked for the translation "please" for tack, never "thanks". Lacking word lists I cannot check, though. Does tack really mean please in most frequent uses in Swedish?
All my Swedish friends tell me this is incorrect. It says this means "it is bad" when actually it should be "it was bad" shouldn't the correct answer be "det är illa" if the correct answer is "it is bad"
Otherwise this just teaches people something wrong or at the least a bit off