Listed below are three ways to use bzip2 with tar, namely
This method requires no setup at all. To un-tar the bzip2'd tar archive, foo.tar.bz2 in the current directory, do
/path/to/bzip2 -cd foo.tar.bz2 | tar xf -
tar --use-compress-prog=bzip2 xf foo.tar.bz2
These work, but can be a PITA to type often.
Thanks to Leonard Jean-Marc for the tip. Thanks also to Alessandro Rubini for differentiating bash from the csh's.
In your .bashrc, you can put in a line like this:
alias btar='tar --use-compress-program /usr/local/bin/bzip2 '
In your .tcshrc, or .cshrc, the analogous line looks like this:
alias btar 'tar --use-compress-program /usr/local/bin/bzip2'
Update your tar to GNU's newest version, which is currently 1.13.10. It can be found at GNU's ftp site or any mirror.