1)    I have heard that nutmeg and poppy seeds are not permissible as they cause intoxication. I have also read that there is a Hadith that prohibits us from consuming even a little of that which is impermissible. Furthermore, some Muslim countries have banned the use of nutmeg and poppy seeds. Kindly clarify?
In regards poppy seeds, it is the bulb and not the seeds which is the ingredient for cocaine. Even the bulb needs to be processed before the Haraam substance comes into existence.

The amount of nutmeg required for hallucinations is 30g. The fraction of a gram used in a pot of food is far from the danger level. This is not unique to nutmeg, but massive quantities of cinnamon, saffron, types of lettuce, etc can cause similar harmful effects. Furthermore, harm is cause for Muslims to abstain from a substance. If the same principle of prohibiting a food based on the harms of large quantities is to be applied across the board, then  soft-drinks, coffee, tea, red meat, sugar, butter, etc would all be Haraam. In essence, an exaggerated argument can make almost any food Haraam.

The famous biographer al-Imam az-Zahabi rahimahullah mentions that al-Imam Muslim rahimahullah was one night so engrossed in researching a Hadith, he absent-mindedly kept eating from a basket of dates. Dates are extremely hot and the excessive quantity caused his death. This is just an example of keeping things in context, or else dates would also be Haraam.

The Hadith mentioned does indeed state that that which intoxicates in large quantities is prohibited in small quantities. Yet a distinction is drawn between ?hallucination? and ?intoxication.? The former does not entail utter loss of senses as the latter does. Thus a hallucegin is prohibited in the quantities required to produce hallucinations, and does not fall within the ambit of the Hadith.

It is our view that poppy seeds and nutmeg are both Halaal and that the banning you have mentioned may be viewed in the light of authorities following extreme caution.