jrao [jrao]

    if($field === FALSE) return array();
    // No more children if we're in the last level
    if($field['type_name'] == $last_type_name && $field['field_name'] == $last_field_name) 
      return array(); 
    $next_field = _hs_nodereference_get_next_field_from_path($params['nodereference_path'], $field);
    if($next_field === FALSE) return array();

See the Drupal coding standards to understand how a module code should be written.
See also what reported about the respect of the namespace, in the coding standards.

  if($params['nodereference_path'] === FALSE) {

The coding standards report that there should be a space after the if, and before the parenthesis.

1.   $items['admin/content/node-type/%/fields/%/hs_config'] = array(
       'title'            => t('Hierarchical Select Configuration'),
       'access arguments' => array('administer site configuration'),
   

   Menu callback titles, and description should not be passed to t() because that is already done by Drupal core code.

2.   $field_name = $field['field_name'];
     require_once(drupal_get_path('module', 'hierarchical_select') .'/includes/common.inc');
   

   The code could use module_load_include().

3.     return hs_nodereference_hierarchical_select_children(
         $parent, $params);    
   

   The code could be written in a single line, as the line length would not be greater than 80.

4.     $field = _hs_nodereference_get_field_from_path($params['nodereference_path'], $node);
       if ($field === FALSE) {
         return array();
       }
   

   If 0, and FALSE are not both two possible return values of the function, then the IF-statement could be re-written as if (!$field) {.

5.     $form['hierarchical_select_config']['save_lineage']['#description'] .= '<br />'
        . t('This setting is disabled because the number of values in this field 
        \'!number-of-values\' is less than the number of levels \'!number-of-levels\'.',
   

   When possible, avoid to escape the string delimiter inside strings, especially if they are translated; when the string delimiter is used inside the string, it is enough to use the other string delimiter to delimit the string.
   In a HTML string, it is possible to use the tag <q> to avoid to use the apices inside a string.