If a tactical entry is required, the only safe and reasonable choice is live ammunition. Using rubber bullets would be absurd.
Who said they were investigating the wrong guy? The affidavit presents a wealth of evidence suggesting that members of the Guerena family and their associates were involved in illegal activity. The extent of Jose's involvement in the alleged criminal enterprise is unclear, but a judge still determined that probable cause existed to search his home.
The main problem with this situation is not that a search warrant was issued, but that the police served it using a paramilitary death squad. Then after bungling practically every aspect of the unnecessary raid, they attempted to cover it up by releasing lies and misleading information.