Normally a lender does not reposess a vehicle simply because the purchaser moves. It is not illegal to take property with a lien on it from one state to another when you move and it's done all the time. The fact that you would ask permission first is a little unusual, and it may have made your lender/dealer suspicious that perhaps you were going to stop paying for the car.
There are some very shady, smaller car dealers who may include poor terms in their sales contracts which restrict movement of their collateral. If you bought your car from a disreputable dealer, this may be the case.
I would find a copy of your sales contract and read it very carefully. If you do find language which restricts your ability to remove the vehicle from the state they're in, then they may have a legal claim to the vehicle and by the same token you have a legal right to stop making payments. If you didn't miss any payments and made them on time, then you each walk away from the deal, however they end up keeping your money and the car. That sucks...
If you don't find any language in the contract giving them the right to reposess your vehicle, then they've broken the law and committed larceny. You should immediately contact the police, file a report for a stolen vehicle and get in contact with the District Attorney in their local area to press charges. You can also report their actions to the Better Business Bureau and RipOffReport.com.
If your lender was decent, they would've explained everything in detail as soon as you notified them of your intention to move. I hope you get your car back and that this dealer gets exactly what they deserve...