I had this happen earlier this season at the varsity level. A team was visiting from Australia and had several numbers which conformed to FIBA regulations, but not NFHS. For example, they had numbers 6, 7, and 9.

It was challenging to report fouls during that contest.

We told the coach that his FIBA uniforms were okay, but that the kids had to play by NFHS rules, such as not violating the BI rule. He laughed and said that they had been having some difficulty adjusting to a few of the rules over here.

To answer your questions: (without commenting on your specific situation)
The proper penalty for participating while wearing an illegal jersey is a direct technical foul on the Head Coach.
This penalty is completely separate from any administrative technical which would be assessed, such as for having to add a player to the scorebook.
The team should be penalized for both situations should they occur.

So everyone here thinks the OP is illegal if it is varsity but not sub? And the rule used is that the number is not centered so it is illegal? What if they turn a 1 into a 31 making the original 1 into the three and adding a 1 at the end. This would be a centered legal number. Then what?

Also had a coach last week want to add a player to the book so he could get into the blow out game. He informed my P that he wanted to do it when the other team had possession on FT or a throw in so his team didn't lose possession. It took 3 or four dead balls and a little time off the clock but I thought the coach was smart to do it this way. Never had a planned technical before.

I would not allow the tape job in a V game. Enforce the rule (absent some special circumstances like the FIBA story a few posts ago)