I have a question on OTB rules, specifically touch-move.

If a player touches a piece and moves it despite the fact that the said piece cannot make a legal move on that turn, what happens? The move naturally is cancelled, but what of the touch-move rule? Does the player get penalized in some way?

There is no penalty under the touch move rule. But there is a penalty for making an illegal move. This is probably a rule that varies depending on national federation, and probably also over time. My most recent experience is that there is a two minute penalty for an illegal move (either decreasing the offending players clock, or increasing the other player's clock).

If there is any legal move the piece can make, it must move. If not, there is not penalty... however abusing this rule and picking up a pinned piece and pressing your lips to it saying, "oooooh I love you Bishop but you can't mooove nooo..." will get you in trouble with the tournament director.

 lol

So, if I were to touch a pinned piece but not move it from it's square, there is no penalty?

KingFisher, if the piece cannot legally move, I believe Loomis is right.

I made an illegal move with only 8 seconds on my clock a month ago and the TD (who is an NM) said he could reduce my clock time to 4 seconds--my opponent declined.

 Usually time penalties are enforced by adding time to the opponents clock. At least I am pretty sure thats the way FIDE does it.

NM Reb, just checked. Yep, USCF 1.11D - 2 minutes added to the opponent's clock. It was 16 minutes to 8 seconds, so it didn't matter too much in my case. Good to know.