As of April 30, 2003 all visitors to Costa Rica must have a legal passport from their country of origin. Prior to that date you could enter Costa Rica on simply your drivers license or some other form of ID.
Visitors from Canada, the United States and most of Europe don’t need to apply for visas in their home countries but instead receive, upon arrival in Costa Rica a stamp on their passport authorizing a 90-day stay. When that 90 days is almost up, you need to leave the country for 72 hours before re-entry and a new stamp authorizing you to stay for another 90 days is entered into your passport. Many foreigners make this trip out of the country every 90 days instead of working towards getting their legal residency status. This is call perpetual tourism and is frowned upon by the Costa Rican authorities. While nothing is being done at this time to prevent perpetual tourism there is no way to tell when immigration authorities might decide this is unacceptable and refuse your entry into the country for abusing the tourist visa priviledges.
If you have anything to loose, like a house or business you might want to seriously consider filing for the proper immigration status to prevent any unnecessary mishaps. You never know when immigration will start cracking down on perpetual tourism.