When can I use iMessage? How do I restrict it to only use iMessage?

I have to pay 30 cents per text, which is a ripoff, and pretty much everyone I know uses an iPhone or iPod touch, so I want to just use iMessage with them. For some reason, though, I can only sometimes send iMessages to iOS users. I can never send them to my friend, who has an iPhone 4 running iOS 5. I can typically send iMessages to my parents but not always, it sometimes only lets me send by paid SMS. They definitely have iMessage enabled. Maybe I'm not choosing the right address to send it to?
So are you supposed to enter someone's phone number, and it'll know whether or not they have iOS and use iMessage if they have it, or do you have to enter their email address that they set as their iMessage address?
Also, is there a way to just force it to only use iMessage? I don't really want to send or receive paid text messages under any circumstance. Come on, 30 cents to send a few bytes is ridiculous.

I tried that, thinking it was exactly what I wanted, but it still sends stuff as SMS (green bubble).

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