It's not illegal to use another form of the name, and morally, well, you have to decide! But as Jeyce said, if you make a close copy of someone else's domain name you will likely send them a lot of your own traffic.
Like it or not, the .com is still the most commonly recognized, and many people will automatically type it in. If the site that owns the .com of the name you want has nothing at all to do with the type of site you are planning, it can still be worth getting the name you want with another extension - .net, .info, or one of the others. You will just have to work a bit harder at establishing your identity, and your marketing needs to make it obvious what domain extension you are using in a way that people will remember. If your site and the other one are similar, you will just be sending them business.
My personal opinion of using 'the' or some other pre- or suffix to distinguish you is that if the name of your business can easily be identified with it (The Shoe Store, The World's Best Pizza), you're ok with it. But if I am trying to find your shop, which is normally called Blue Mountain Bikes, and I type in 'bluemoutainbikes.com' and get some other site, I will just be annoyed trying to figure you out at 'thebluemountainbikes.com'
These are just my opinions, of course! 
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