i really don't have a problem with this, since it was pretty creative, but clearly this (practice) could become an issue.
The rule on this is that you're pretty much allowed to draft any retired player you want. However, 1) you take that player in the condition they are currently in, and 2) there is no guarantee that they'll play for your team. In assessing the various teams, the other general managers have to ask "would Michael Jordan really be inclined to come out of retirement at this point?", etc.
So, it's all in good fun, but ultimately, a pick of Michael Jordan is a wasted one.