FBI shuts down ISP

On BoingBoing an article described how the ISP shut down an entire ISP (hosting only) in order to find a single hacker.

I am amazed that they are allowed to do that. So many other customers will suffer because of this. I guess there need to be rules of what law agencies are allowed to do and not. Or can they just shut down AT&T, because someone just a phone to plan a terrorist attack. I guess they can not. But why can they do that to an ISP? Where does it begin? and where does it stop?