A good cleric (or one who worships a good deity) channels positive energy and CAN CHOOSE to deal damage to undead creatures OR to heal living creatures.
Based on wording I would say you are playing it correctly.
You Are Right!
From the Book: page 40.
Channeling energy causes a burst that affects all creatures of one type (either undead or living) in a 30 foot radius centered on the cleric.
This means one of the Two is affected, not both.
By by.
I'm probably just being stupid here but what happens if you have undead and living characters in the area effect of a cleric's channel energy ability?
At the moment I have ruled that you can either effect undead OR living targets but not both.
Is this correct or have I been playing it wrong?
In the Beta (or was it the Alpha?) channel energy did both simultaneously, but the Core rules now only permit you to do one or the other. You're doin' it right.
Yes, assuming they are affected by channel positive energy (i.e., are humans or some similar humanoid) and you roll well enough to put them to positive hit points. That's the thing about channel positive energy, it heals everyone it hits (friend and foe alike) unless you are able to exclude them via selective channel.
Depends on constitution score, see Dying.
Are the fallen foes dead or merely dying? If they are already dead, then your channeling won't bring them back. If they are only dying, then yes, you just brought them back into the fight if you failed to exclude them from your channel.
They don't have to be humanoids to be healed by positive energy. All living creatures, other than those with negative energy affinity, are healed by it, so animals, outsiders, plants, aberrations, etc. would be healed as well.
Yes, this is an often-overlooked complication for combats. When you reduce an enemy to -1 to one shy of -CON, the foe is dying but not dead, and assuming that they're healed by positive energy, channeling would heal damage.
Now, if you don't heal enough to revive them, then they won't jump back into the fight, but if you have an enemy that's just a couple of points below 0 then you're probably going to bring the enemy back to his feet.