My current understanding is that the latter language is dehumanising by describing the person to be illegal in their existence. Usually we would say that someone has done something illegal, not that they themselves are illegal.

Yep.

In general you want to describe people by adjectives and not label them as nouns ouns.

Sometimes it's different because the group wants to be called a noun (Christians) but that was well after they became the majority in Europe and was still used to shit minorities.