I think if your playing with a true beginner, the occassional mulligan, and waving of certain rules has to be done. The game is hard enough without the additional strains of the tough rules.
Once they get some experience then I would point out when they made a mistake for the first time, and possibly let it slide if they were unaware of the infringement, then after that enforce it.
Generally speaking playing to the rules improves the game and makes it a fairer match, handicaps are there to even things up.
The only rule I'm not a fan of is having to go back and play your ball if you cant find it. It causes such a delay to everyone behind you and in your group. Even if I was in competition and my "opponent" was meant to go back to the tee I would ask him to play it as a lateral hazard, taking a sensible guess at where best to place it.
If I was the original poster against friends who played 25 over while still not playing to the rules, then I would give them 25 shots and let them play as they normally do (within reason). If there handicap is 25 shots with a few rule bends then so be it.