There's already a plugin that offers what you are looking for: https://github.com/Elgg/mentions (it's available just on github but not on the community site). You don't even have to disable the HTML editor for it to work.

Then there's the Wire Tools plugin (https://community.elgg.org/plugins/1608487) that does the @mentions replacement for wire postings. In case you intend to use both it might be necessary to test for possible conflicts (I've not tried this myself yet).

@iionly It works just fine in the wire and some other places. Idk if it's my river_addon plugin or what that's helping do that. However, mentions in group comments on discussions doesn't work. I also use live_notifications so I'd like for it to work with live_notifications too.

My social network is going to be very groups-focused so I want to make sure group discussions are in full functionality, including @mentions. 

@iionly good Hint. I have combined The Wire Tools and Mentions. There is a conflict on the Wire-Post-Form, but i like the functions of The Wire Tools, eg. the Group-Wire. So i overwrite js/thewire_tools/site.php (commenting out the autocomplete-function) and unregister the action thewire_tools/mentions_upgrade in my theme-plugin. But it would be great to combine these two Plugins in the future without conflicts ;-)

The new function that replaced unregister_notification_handler() in Elgg 1.9 and newer is called

elgg_unregister_notification_method()

To get rid of the deprecation warning you only need to replace unregister_notification_handler() with elgg_unregister_notification_method() in the code of te Live Notifications plugin. The function parameter stayed the same, i.e. unregister_notification_handler($notification_method) would become to elgg_unregister_notification_method($notification_method).

What file(s) would contain that code?

In start.php of the Live Notifications plugin.

http://learn.elgg.org/en/stable/appendix/faqs.html#i-don-t-like-the-wording-of-something-in-elgg-how-do-i-change-it

OFF TOPIC:
Hey Evan, we were missing you. see:
https://community.elgg.org/discussion/view/2003672/river-and-wire-redundant

My bad. I didn't remember that The Wire doesn't have the option.

You could create a plugin that overrides the views/default/forms/thewire/add.php view and adds the access input field. The action that saves it in fact already supports entering the access! It's just missing from the form.

I think the plugin Wire Tools has that feature Juho.

I think the plugin Wire Tools has that feature Juho.

correct

Have you created a database to be used by the Elgg site in CPanel? Elgg won't create the database itself during installation but requires a new database already been available. There's this error message:

[10-Feb-2015 05:04:53 UTC] Exception #1423544693: exception 'InstallationException' with message 'Unable to handle this request. This site is not configured or the database is down.' in /home/deemstars/public_html/development/engine/classes/Elgg/Database.php:594

that makes me belief that the database is not available or that you don't provide the correct database credentials (db username, db name etc.) during installation and therefore Elgg can't access the database.