Hollow points are indeed illegal to carry in NJ, with the exception of LE. They are legal for anyone to purchase (though the seller is required to report you and the amount he sold to you), keep in their home, and use at the range - just not for carry... which doesn't really matter to 99.999% of the population, as it is next-to-impossible to obtain a permit to carry a handgun in this state, anyway.
But you are correct... if you are retired LEO, a private investigator, or by some miracle a private citizen assigned a permit to carry, you are required to use ammunition that could overpenetrate and possibly injure/kill someone innocent. At least, until the EFMJ's hit the market... they're not covered by the statute that prevents hollow-nosed bullets.