You can certainly live on a kibbutz if you want to. If you are a chayal boded, the kibbutz gets the money you would otherwise be paying for rent, and you get a little extra money for living on a kibbutz. I think it's 100 or 150 NIS per month.
As someone who is making aliyah, if you get an account with the Bank of Jerusalem, I believe you then get an extra little monthly stipend (also about 100 NIS) for living on a kibbutz. Or at least that's how I remember it.
As for how to choose a kibbutz, I'm afraid I don't have much help to give you there as I didn't live on one. A lot of young olim going into the army live in Deganyeh Aleph in the north, but there are many options.
Mahal Nahal March '04 draft