Hug friends may hug while scantily clad or even naked, so long as their contact is strictly of a hug-like nature. Any additional touching of a sexual nature is considered a breach in the hug friend code so that the relationship may no longer be classified as a hug friendship.
"Room mate 1: So you went over to Amy's pretty late last night.. Did you guys do it?
Room mate 2: No, we're just hug buddies. She couldn't sleep because she needed a hug, so I went over to give her one."