To clarify the issue on 401k withdrawals, you are allowed to withdraw from your 401k or borrow a loan from it if you’re facing “financial hardships.”

The following are reasons acceptable by the IRS for a hardship withdrawal

i) Repairs of primary residences
ii) Funeral expenses
iii) Payments necessary to prevent you from being forced out of your home
iv) Home foreclosures
v) Payments of college tuition & other educational costs such as room & board, transportation, food, etc.
vi) Purchase of principal residence
vii) Unexpected or un-reimbursed medical expenses

401k hardship withdrawals are subject to a 10% early withdrawal penalty as well as income taxes due. For example if you withdraw $10,000 as hardship withdrawal, you will owe $1000 in penalty, as well as be taxed on the $9000. There are some hardship withdrawals however that are not subject to the 10% penalty, they are:
Source: http://www.401klookup.com

i) You stop working, get laid off, quit or retire in the year you turn 55 or after
ii) Court orders you to give money to a divorced spouse or dependent
iii) Unexpected medical debts that exceed 7.5% of your Adjusted Gross Income
iv) Permanent disabilities
v) You stop working and begin taking regular payments based on a schedule that will make equal payments for the rest of your expected life; this must last for 5 years or until you turn 59 and 1/2, whichever is longer.