I am ruling fumble on this play, not certain of the "black and white" rule but game situation tells me this is a fumble.

Under NFHS rules, I wouldn't call this a foul even if you paid me too :).
But then a lot of people beleived the forward pass by an airborne receiver is illegal when it has most recently been shown that it is legal.
Maybe the only way to put this to rest is to have those in position to do so to contact the NFHS through proper channels.

More than likely in a game situation I would rule this a fumble also...its just that after hearing the situation it seems that it is almost rewarding a player for an illegal act that wasn't even by mistake, they did it on purpose. Let's just pray for clean plays and kicks that go right through the middle of the uprights every game.

Consider this A32 attempts to hand the ball forward to A78. Rather than a muff immediately, A78 tips the ball up in the air, one, two or three times before he controls it five yards downfield.

I know several chose fumble and according to the definition it could be but it could also be forward handing. That is why there are interpreters.

If you consider my scenario, the observing official should flag the illegal handing at the point where A32 released the ball.

I have several thoughts on this subject, but because of quoting limitations, I will address them in separate replies.
A32 cannot "hand" to B56. Rule 2-19-1 states: "Handing the ball is transferring player possession from one player to a teammate in such a way that the ball is still in contact with the first player when it is touched by the teammate. Handing the ball is not a pass."

Just being picky here.

This in fact is a violation of rule 7-3-3, because the handing contains both tenets of 2-19-1 -> transfer of player possession, and ball in contact with two players. Player possession was probably established when A78 began tipping the ball, and definitely when he caught it (Rule 2-32-1 "A ball in player possession is a live ball held or controlled by a player after it has been handed or snapped to him, or after he has caught or recovered it."). Had the ball been grounded, rule 2-18-1 is invoked: "A fumble is any loss of player possession other than by handing, passing, or legal kick".

If player possession IS NOT transferred, there can be NO Handing. If there is no Handing, there can be NO Forward handing. No penalty.

I do agree with Ed in one respect. This should be more closely addressed by the rules people at NFHS.