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Anyone who is from an eligible country and meets the educational and financial requirements can enter the visa lottery. But the real question is, what happens if you win? People living in the U.S. illegally are rarely able to succeed in a green card application, no matter what basis they're applying on.
This is because, for the most part, only people who are currently in legal status in the U.S. can apply for the green card using a procedure called "adjustment of status," meaning they take care of all the paperwork and their green card interview at a local office of U.S. Citizenship and Immigration Services (USCIS). Everyone else must leave the U.S. and complete their green card application at the U.S. consulate in their home country. However, if you have been unlawfully present in the United States for more than one year (since April 1st, 1997), the consulate can forbid you from returning to the U.S. for ten years.
Various exceptions exist to these rules, depending on the details of your personal situation: For example, a few people still have the right to adjust status in the U.S., under an old law called Section 245(i), usually because someone started the process of getting them a green card. And some people who might think of themselves as living here illegally are actually not "unlawfully present," such as some students who dropped out but whose cases haven't been examined by the immigration authorities. Also, some people who leave the U.S. can apply for a waiver of the ten-year bar (based on having close relatives in the U.S.) in order to return and claim their green card. You'll need to see a lawyer for a full analysis.
For more information on the green card lottery, see U.S. Immigration Made Easy, by Ilona Bray (Nolo).