I'm helping my SO plan for the worst since being laid off from work two weeks ago. The unemployment office's (Illinois) documentation has lots of convoluted language that among other things seems to indicate that 401(k) withdrawals qualify as wages and as such, would negate eligibility for unemployment benefits.
Dipping into the retirement fund is the absolute last resort and we both know that it comes with a 10% penalty and is taxable, but what I can't find a straight answer on is what happens if the 401k is withdrawn while receiving unemployment benefits. The maximum benefit from unemployment doesn't come close to covering expenses and it sounds like our options are either suffer or burn through the entire retirement account, then file for unemployment.
EDIT: Possibly important realization that the employer did not match any funds, so all contributions are my SO's own. From advice and anecdotes I gather it seems like converting to an IRA is the first step in reducing confusion.