Following up on Eugene's post, the always-helpful Bryan Garner concludes in his excellent resource, A Dictionary of Modern Legal Usage: "The usual and preferable term in American English is illegal alien. The other forms have arisen as needless euphemisms, and shold be avoided as near-gobbledygook. The problem with undocumented is that it is intended to mean, by those who use it in this phrase, 'not having the requistie documents to enter or stay in a country legally.' But the word strongly suggests "unaccounted for" to those unfamiliar with this quasi-legal jargon, and it may therefore obscure the meaning."
Garner has more analysis on the debate. I don't have a firm view on the subject, but pass the reference along to those who are interested.