My wife and I rented a house for a year and a half, when we moved in we gave the landlord fist and last months rent + a $500 security deposit. Late last year we bought our first home. We gave the landlord the required 60 days notice and moved out at the end of January.

Our lease stated the security deposit to be paid within 15 days of vacating the property. It is now two months and counting since moving and still no deposit. We have called many times and asked politely for it's return. The Landlord keeps giving us excuses and the runaround. My patience is wearing paper thin.

Hindsight is 20/20. I learned that within Ontario a security deposit is illegal. Other than small claims court, which would just cost us more money, what recourse do we have?
We just want our money due and to move on from this unpleasant experience.

It is illegal in Ontario to ask for a security deposit. Your landlord knew this - he was just hoping you did not. Your best bet is to sue him. This can be easily done in small claims court (it is VERY simple in Ontario, just go to your local Provincial courthouse and ask for the paperwork.) When suing him, sue for the deposit, the interest (I believe that it is 6%) that he owes you for ALL deposits, as well as any legal costs (this includes charging for the time you took to complete the paperwork and research.)