the job with the league is a completely sham but the fact that he gets LTIR is due to him being unfit to play hockey. They didn't bend any rules, Philly just got lucky in the sense he couldn't physically play and will have plenty of doctors able to back that up for the duration of his contract. The league emphatically stated his contract was a 35+ when the Flyers argued it wasn't (How any upper management team could not understand that clause is beyond comprehension mind you).
Pronger signed a contract as a 35+ player, which means no matter what happens to him, his cap hit counts against the team salary cap...unless he stays on LTIR. If Pronger retires, his cap hit would be on the Flyers books.
Where the rules get bent is Pronger was hired by the league, while still being on LTIR. The league elected to not call Pronger a retired player, despite the fact he's not actively trying to get well (IE not training and undergoing medical treatment like a recovering player would), even though he is working for the league in a role that certainly implies he is retired.
If the NHL declared Pronger retired, which they would have good cause to, his $5 million cap hit applies to the Flyers team cap. They don't label him that way though, despite working for them, something that's a huge benefit to the Flyers.
The season they announced the hiring of Pronger to the NHL offices and stated he wouldn't be considered retired, the Flyers were really hard up against the cap so it was a huge bonus for them.
http://www.nhl.com/ice/news.htm?id=686848
Pronger's contract runs through the 2006-17 season. He was 35 years old before the contract began, so the Flyers are on the hook for the $4.9 million cost against the salary cap each season, though they have been able to receive relief by placing Pronger on long-term injured reserve at the start of each season.
Were Pronger to retire officially, the Flyers would lose that ability and his contract would count fully against the cap.