It's harmful, and New York State Bill A1008/S323 is being introduced to outlaw it. (Here, sign this petition in support of the bill.) This all via Melissa Gira Grant's wonderful new blog, Post Whore America, which everybody should be reading. She writes:
Condoms-as-evidence is NYPD’s own sexed-up form of stop-and-frisk. As a result, close to half of the sex workers surveyed for this report say they have had condoms taken from them by cops, and close to half have stopped carrying condoms altogether, for fear of getting charged for the crime of protecting their own health.
Sex work shouldn't be illegal in the first place, but carrying around condoms DEFINITELY shouldn't be, and isn't, except when it is.