the phone seems to know who has iOS5 because it has greyed out in the text box either iMessage or Text Message, but my Text Messages are simply not being received or sent...either way, they are not getting them.
No I said it selects iMessage by default if the recipient is able to receive them.
It's obvious this person already has it activated as its selecting iMessage for him/her. Therefore your comment is pointless.
I'm on the phone with AT&T now, so it appears that the problem is with my plan that was changed from Family to an Individual right after I transferred over to the 4S.
For iOS5 users I texted it was on by default for my phone. I had to turn it off in the options (offers no benefit and adds another company in the channel my texts go through).