Pandora's Box - By asking the question of "When does a fly become a lure?", you may have just opened it. Technically, a fly is alwas a lure. Wikipedia says "A fishing lure is an object attached to the end of a fishing line which is designed to resemble and move like the prey of a fish." Thus, every fly is a lure.
That said, I know why you asked that question. I have seen many 'flies' that I would call a lure, but fot the fact that they were hand made and tied on a hook.
Many states have created laws pertaining to 'fly fishing only' situations, and even their laws are a bit vague.
For me, it is a simple answer. If I use a fly rod and a fly line to cast the 'fly', then the fly is a fly. Main reason, the line is taking the fly with it. If I use a spinning rod with a thin mono type line, then it is a lure, main reason, the lure is taking the line with it. There are streamers and such that can be used in either manner of casting, so it all depends upon what rod/reel/line I am using.
Larry ---sagefisher---