Do I need to get USD to travel in Argentina?

When I travel I usually just withdraw money from an ATM. Does that mean that in this case, I should be bringing lots of USD to exchange?

Yes, it means exactly that.

Does it have to be USD? Do they accept Australian dollars at all?

You might be able to find someone who does, but it will be much harder and the exchange rate will not be as favorable. USD is best, though Euros and Brazilian Real are also commonly accepted. Large notes are better than small ones.

I also heard it is technically illegal to do this, do I need to take any precautions?

Not really, especially not as a tourist. Obviously, you should not follow some guy who promises super special exchange rates into a side street in a shady part of Buenos Aires, but there's no reason to - in the tourist hot spots of BA, traders will find you, and they operate quite openly.

Update: In December 2015, the new Argentinian government removed the exchange restrictions, so the official exchange rate is now based on real market forces and the black market has lost its advantage.

Legal or not, there is reason to defer buying Pesos with Dollars because inflation in Argentina is running at around 11% pa (was as high as 20263% in 1990) and more like 2% in USA. So each month exchange is deferred the purchasing power of USD relative to ARS effectively increases by almost 1%.

Inflation in Argentina increased to around 36% year on year in 2016 (USA remained around 2.1%), so more reason now to defer purchase, if possible.

Since the end of 2015 the rules have changed. Mauricio Macri (Cambiemos) was elected President in November and as promised removed the restrictions on buying and selling dollars. The peso rate floated and the official and dollar blue rates came almost into line. There is still a difference but it is around 4%. For example today from ambito.com:

So for:

Do I need to get USD to travel in Argentina?

No. Safer to keep it in the bank until required.

TripAdvisor may be of interest.

There are two exchange rates in Argentina. The legal rate and the illegal rate(blue). If you want to stay out of trouble you should go get the legal at all times. There is less chances of getting ripped off with counterfeit money from the legal exchange offices.

Your best bet is to only take USD with you as it is super hard to find places to change other currencies.

I am an expat living in Bolivia. One time I had Bolivanos(Bolivian currency) with me and I had to travel to the south of Argentina. The only people who would change with me were some bus drivers in the bus station that were going to Bolivia. The rate I got was really bad and I lost a lot of money as I had no other choice.