Help me understand Instawallet better to trust it more!
Instawallet doesn't support green addresses anymore.

It would have required to maintain a fork of the Bitcoin client which is not very practical, and probably not very secure either.

Instawallet works as a simple shared wallet, it monitors transactions coming in to each wallet's address and adds them to the wallet's ledger as they come in.

When transactions are sent from a wallet they are simply sent using the Bitcoin client, which will pick random addresses from the pool of funded addresses, that is why you can't derive the balance of a wallet or track its activity by looking at the block chain.

That also makes it an useful privacy-protection tool. (But contrary to what I saw written in a couple places it is absolutely useless to hop through multiple wallets, it doesn't increase anonymity in any way).