As long as the extension isn't a flash or sound suppressor (i.e., a muzzle brake is okay), and the muzzle extension is permanently attached, it's totally legal.  Keisler's Wholesale had Bushmaster make up a ton of these in 1999 and had them engraved as "Y2K Special" rifles.

Of course, they are almost worthless ballistically, given the low velocity due to the short barrel.  Given that the overall length must be 16" anyway, you're better off having as much as possible of that length being velocity-increasing rifled barrel.  A 14.5" barrel with 2.2" brake (such as from Kurt's Kustom) will give you minimum legal length with a lot more barrel.  Or, you could have a fake suppressor pressed over a 16" barrel, like the Rock River LEGP rifle, though this is less "conventional."

-Troy