Carlton,
You are correct in saying that only the leaves and stems are poisonous and the fruit is not (well, it has a much lower level of toxicity). That said, hornworms will generally feed better on the leaves and stems than the fruit. In the wild (the wild veggie garden, that is - lol!) they will usually only eat the fruit once they have decimated the rest of the plant!
Victor,
"Lele stated that it would only be safe if he found a very young (1st instar) hornworm and raised it up on bellpepper (fruit) or hornworm chow it MIGHT be safe."
I did not say they could be fed on bell pepper. I will usually give a blanket statement about the plant so someone doesn't get lazy and say "oh, how much could a couple of leaves hurt?" 
Chaco,
"The worm will pupate and eventually become a moth that will produce eggs to start the cycle over."
they need to mate, which in captivity is not easily done because of their feeding habits (mouth part (proboscis) is up to 2.5x the length of the moth's body, and they need to hover in order to feed)). One would need a large rearing setup in order to complete the process. If you know what you are looking for you can take a female moth at lights that is possibly gravid. After she lays you need to wait to see if the eggs are fertile or not. The more battered the moth (wings), the more likely she has mated - but not a hard and fast rule.
***"Hornworms are regarded as pests so legally you cannot do this either. An authorization is required from USDA to do this."
Yes, they are considered pests and cannot be sold/transported into certain states, but as for rearing anyone can do this. It is commonly raised in classrooms b/c of their relatively short larval stage (compared to pupal stage, which can be up to 11 months in its northern range). There are many places that sell them to school, nature center, parents, regular folks like you and me...
As for a permit, I believe one is required to SELL them.
OK, think I covered it all 
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