I just read the New York City District Attorney's Motion to Dismiss Zuffa's lawsuit, and in it the dude freely admits that the law banning professional MMA does not apply to amateur bouts. Oh hell yeah. Back in 2003 I discovered that loophole in the law and wrote about it in Full Contact Fighter, and since then a few "underground" promoters have managed to exploit that loophole to varying degress of success.
Here's a link to the document - http://www.scribd.com/doc/79853000/Fighting-Motion - but if you want to cut to the chase, here's the relevant sentences:
"The statute’s provision on its face explicitly speaks to ‘professional’ combative sports and does not address amateur sports. Moreover, while the legislature, in another statute, regulates amateur boxing and wrestling, the legislature has not enacted a provision expressly addressing any amateur martial arts activity. Accordingly, the statute does not treat amateur MMA bouts any differently from amateur bouts involving traditional martial arts."
Ah yes, the sweet taste of vindication...