So when Harold Hill first comes to town, he passes a tobacconist/cigar shop. If cigarettes are illegal, how is this possible? Cigars are okay, but not cigarettes. Cigars are worse than cigarettes in my opinion. They take longer to burn and usually smell far worse.
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It's possible, because this was actually the case in Iowa. Cigarettes were illegal in that state from 1896 to 1921 -
http://archiveattic.wordpress.com/2009/04/02/1262/
On the other hand, there's a cigar store in Iowa that's been in business since 1911, 10 years before the repeal of the cigarette ban. And The Music Man is set in 1912 -
http://www.nationalcigar.com/
Harold Hill passes a shop called G. Hopkins - Smokers Supplies, which would cater to both cigar and pipe smokers. And the audience sees it right after they've learned cigarettes are illegal in Iowa. I could be wrong, but the placement seems pretty deliberate to me; it's a way of letting filmgoers know that Harold has just entered an unusual place of contradictions - where the people, as the "Iowa Stubborn" lyrics say, may appear cold but will "give you our shirt, and a back to go with it, if your crops should happen to die."