No mics on the officials. So it probably was illegal formation. Just went by what the announcer said.1. You are correct. NFHS still differentiates between illegal substitution and illegal participation. A 15-yard penalty for IP in that situation is correct.
2. There is no such thing as “illegal procedure.” I’m assuming you mean illegal formation. Yes, live-ball fouls by both teams cancel and the down is replayed. The yardage of each foul is irrelevant. If the officials ruled the personal foul was a dead ball foul (they didn’t in your play), both fouls would be enforced.
Glad the officials got the calls right even though I disagree with those particular rules. Seems crazy that a technical issue can offset a player safety issue. We really thought the officials were deciding whether the player should be tossed out of the game because of the severity of the play.