Some questions have come up about when to use the kanji instead of Hiragana.

The kanji for "GOOD" and "VIRTUOUS" has the kun readings [kana]ii, yoi[/kana]. However, I don't think I have seen them used in Japanese texts...

In relation to the grammar, how do I know when to use these readings, apart from their on yomi of course.

For example, in these sentences, would you substitute the [kana]ii yoi[/kana] for the kanji "GOOD" or "VIRTUOUS". Please forgive me for not writing the kanji, still can't input it...

[kana]tegami wo kaita hou ga ii desu [/kana] It is better to write a letter.

[kana]warukatta hito ha ii hito ni natta [/kana]
Person, who was bad, became good/virtuous person

[kana]kanji ga kaketara, ii desu ka.[/kana] It would be good/virtuous if (I) can write kanji?

[kana]satsu wo osotta no ha yokattanda[/kana] Attacked muderer, was good/virtuous.

[kana]nihongonouryokushiken ha yosa keikenzumi datta.[/kana] JLPT was valuable experience.

Also, the word [kana]yoku[/kana] comes up, does this use the kanji "GOOD" or "VIRTUOUS" or do you have to stick with the Hiragana.

[kana]nihongo ga yoku hanaseru[/kana] Can speak Japanese well.

[kana]sakana ga yoku kaiwa ni noboru[/kana] fish often come up in conversation.

When I see 良い I assume it's よい. But I usually see いい and　よい in hiragana.

I've turned your sentences into kanji to the best of my knowledge:

手紙を書いた方がいいです。 It is better to write a letter.

悪かった人はいい人に成った。　Person, who was bad, became good/virtuous person

漢字が書けたら、いいですか。　It would be good/virtuous if (I) can write kanji?

さつを襲ったのは良かったんだ。　Attacked muderer, was good/virtuous.

にほんごのうりょくしけん は よさ けいけんずみ だった。 JLPT was valuable experience.
*don't know how to kanji-fy this one :|*

Also, the word よく comes up, does this use the kanji "GOOD" or "VIRTUOUS" or do you have to stick with the Hiragana.

本語か良く話せる。　Can speak Japanese well.

魚が良く会話に登る。　fish often come up in conversation.

As yukamina said, I always assume 良い is よい and いい is always in it's hiragana form. Technically you can use either reading, but anything other than the dictionary form is always going to be よ and not い.

Thanks for that Mighty_Matt. To kanji-fy the "JLPT was a valuable experience" sentence, the elements for JLPT are "day, book, ability, power, test, and verification", "VALUABLE" is uses the kanji for "good" in that SA grammatical structure for i-adjectives, "EXPERIENCE" uses the kanji "sutra, verfication, finish (note that it's a kun yomi)".

Just to correct you on the kanji for the sentence "fish often come up in conversation", you use the kanji for "ABOVE" rather than "ASCEND".

When I see [kana]yoku[/kana] in a text, it's always written in its hiragana form, but having a look at what Mighty_Matt wrote, that clears out the fog.

Now another question based on this topic, how does the kun yomi (not on yomi) for "VIRTUOUS" work in a sentence since it has the same kun yomi as the "GOOD" kanji.