MATLAB, 56 characters
based on @gnovice solution, improved by using MATLAB's spiral function :)
disp(char(isprime(flipud(spiral(2*input('')-1)))*10+32))
Test Cases:
>> disp(char(isprime(flipud(spiral(2*input('')-1)))*10+32))
2
* *
*
*
>> disp(char(isprime(flipud(spiral(2*input('')-1)))*10+32))
3
* *
* *
* **
*
*
>> disp(char(isprime(flipud(spiral(2*input('')-1)))*10+32))
5
* *
* *
* * *
* * *
* ** *
* *
* *
* *
* *