Oooh, you entice me back posting with talks of the military.

To answer your questions directly CK, the following actions are taken:
Army Bases are built so as to have sufficient housing for all of my soldiers, plus around 20% surplus space, in the event that I need to import military staff to address emergencies.
Any military person found not living in the bases is evicted from their chosen housing, until they take up residence as I require. Usually, army personnel choose housing other than bases when positioning of the bases is poor. They are therefore located pretty much evenly across the island, although not in high value farming/industry/town centre locations.
Usually I have two prison zones, where the prisons with guard towers and a base or two are placed together, usually on top of hills where farms do not grow and where walking traffic from peons in general is minimal. Entertainment for these locations can be an issue, although all it means in reality is the army and prison guards have to travel a little further. As there are plenty of the army around to be on duty however, it is less of a problem than would be expected.
Not all peons put in prison are killed on leaving. If there factional leaning is supportive of my requirements (military/capitalist/religious) and re-education has worked, I am happy to let them out, and ensure swift housing and a job. Prison releases that are not sent to see St Peter are watched more closely than others' on my island, only just behind the military and faction leaders. As usual all prisons and their family are renamed, so as to trace them and decedents easily through the almanac.
An often overlooked aspect of military islands is the statue. These are of great value and provide cheap, even coverage for government control, as well as addressing aspects of crime. They also have the advantage of never staging a coup!
Of course th other tool is the Bride edict. Used often for generals and sparingly for loyal/well performing soldiers, it can mean the difference between a coup and the time to spare to cull the army.
In respect of the matter of recruitment, this is almost always home-grown, having 1 or two schools set to educate those as to the ways of the military (females evicted). Only during times of resource pressure (or post-coup) would I employ costly and often fickle foreign soldiers. A useful technique for ensuring a good crop of soldiers (or at least military minded faction’s supporters) is to manage the factional leanings of your island closely. This means waves of "Love it or Leave it", followed by periods of "No one Gets Out Alive". This serves to release the build-up of dissent as required, whilst also not allowing masses of your most educated to flee the island.
As usual, the almanac is the final – and most powerful – tool of any military-minded despot, ore those wishing to try their hand as a blood-thirsty tyrant. I know many just cancel it each year and some even disable the yearly pop ups, however when playing as a tyrant this is a tactic that a player can ill-afford.
Aside from cycling through the happiness and respect lists of your people looking for general dissent, this is where you can keep track on those who you have renamed for a range of misdeeds. Whether it is those released from prison and given a second (and last!) chance, or those that have protested, as well as faction leaders and their families, your military must face the closest scrutiny.
“Keep your enemies close and your friends even closer” best describes the relationship between the army and El Presidente. A small faction within the army can easily lead to a coup and it must be remembered that a coup forces the army to either side with you or against you (the third option of turning chicken only occurs as the coup progresses)
After many coups I have learnt it does not take much to have a soldier decide to side with those wishing to overthrow you. Anything from a low satisfaction for food or entertainment, or a perfectly respectful soldier who has a high weighting for something not easily (or regularly) satisfied would appear to be grounds to join the coup.
Regular, if not completely fair, culling of the army is therefore required. As most long-surviving tyrants in real life have shown, regularly changing/killing/imprisoning/sacking those that control the guns ensure there is limited chance for them to build a reason to overthrow you. In the sense of Tropico this means using the army to oppress the masses/crush rebels/widen government control, and knowing that any reasonably skilled soldier/general can accomplish this.