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If something falls under an exception to the hearsay rule, it's not hearsay. And plenty of people have been convicted based on evidence that falls under an exception to the hearsay rule.

I thought that anything one person claimed to have been said by another was hearsay (they "heard" it and "said" it) but that not all hearsay was inadmissible. Even when hearsay is admissible, there are often significant restrictions on the uses to which it can be put or the inferences that may be drawn therefrom.

Generally, by my inderstanding, there are two objections to hearsay:

Even if the person on the stand is truthfully reporting what he heard/read, there's no way of knowing whether the person he heard was telling the truth, lying, joking, or otherwise saying things that are not true.
The person being quoted is not subject to cross-examination.

The court makes a rather interesting leap of logic in its evaluation of Joan Schiavo's testimony. Joan Schiavo claimed that she was Terri's "best friend", but she had no idea what a feeding tube even was when she was asked about Terri's "wishes" years after her collapse. Nor did she ever tell anyone about Terri's "wishes" until she was contacted by Michael's lawyer.

The court cites Joan's friendship with Terri as a basis for its decision. It ignores, however, the fact that Joan apparently didn't think Terri was very serious about what are now claimed to be her "wishes" (as evidenced by the fact that she never discussed them with anyone, nor kept herself very well informed of Terri's condition). How then is the court not substituting its own judgement of Terri's earnestness for that of Terri's best friend who, unlike any of the judges, had actually met Terri and (if she is to be believed) gotten to know her?