actually the Bible says both. sometimes in these cases its best to look at what it says in the Word instead of trusting in what man has said to you. its best that you look at what all of the Bible says about this. you cant take bits and pieces of Paul's letters, then ignore the other things he wrote about the same subject... c'mon now. and thats what a lot of preachers/teachers do. but we have to keep a balance when it comes to the Word of God especially in the area of salvation. so people won't be confused.
look at these scriptures (keeping in mind that Paul wrote both of these letters - so they have the same author):
Ephesians 2:8-9
For by grace you have been saved through faith, and that not of yourselves; it is the gift of God, not of works, lest anyone should boast.
Romans 6:1-2
What shall we say then? Shall we continue in sin that grace may abound? Certainly not! How shall we who died to sin live any longer in it?
Romans 6:15-16
What then? Shall we sin because we are not under law but under grace? Certainly not! Do you not know that to whom you obey, whether of sin leading to death, or of obedience leading to righteousness?
then he goes on to say:
Romans 6:19
I speak in human terms because of the weakness of your flesh. For just as you presented your members (another word for body parts) as slaves of uncleanness, and of lawlessness leading to more lawlessness, so now present your members as slaves of righteousness for holiness.
so here in these 2 letters Paul lets us know that yes salvation is a free gift given to us by the grace of God and that we must believe in order to be saved. but then he also says, that just because we're no longer under the law, does that mean that we do away with the law? just because we're under grace, does that mean that we continue in sin? then he responds to his own question with a resounding no! i suggest that you read the book of Romans, specifically the 1st 6 chapters.
the Lord has saved us by grace, but He has also called us to a life of holiness. holiness is not unattainable. if it were, then the Lord would not require it of us. think about it: God would never require something of us, that we were not able to attain. and yes it is a requirement. the Bible says without holiness no man will see the Lord (Heb. 12:14). and Jesus said out of His own mouth that only the pure in heart shall see God (also referring to living a life of holiness). but just like it was His grace that saved us, it will also be His same grace that leads us into a life of holiness. i think what a lot of "grace preachers" (if thats what you like to call them) fail to recognize, its the whole definition of the word "grace."
grace is not just defined as God's mercy on mankind's sinfulness. but grace is also defined as the power of the Holy Spirit in us to overcome sin. so not only does His grace save us from sin, but it also enables us to overcome the sin that is in our lives. when you look at it from that perspective, then it helps you to understand why Paul wrote what seems to be contradictory statements. but when you understand the full meaning of the word "grace" then it helps you to get a better picture.
and yes Jesus paid the price in full and salvation is not by works. but Jesus' death was more than an Atonement for our sins. He also gave us His Spirit to help us overcome sin. so what His Word requires, His grace enables us to obtain.
as far as repentance: Jesus said Himself if we do not repent we will perish (Luke 13:3). and in Acts it says:
Acts 3:19
Repent therefore and be converted, that your sins may be blotted out, so that times of refreshing may come from the presence of the Lord,
maybe what you're struggling with is again the definition. repentance means to turn from sin and turn toward God, and again what His Word requires, His grace enables us to do. this is 1 of the reasons why His Spirit now lives in us - to enable us to obey His Word. God knew that we could not obey Him on our own. thats why He has given us HIs precious Holy Spirit to show us how. the power of the Holy Spirit is what enables us to repent from our sins. so the more we trust in Him to assist us, the more He assists us. we have to have faith in Him. we have to believe that He can free us from these things, instead of trying to free ourselves from these things. it is impossible for man by himself, but with God all things are possible.
you asked about practicing sin and knowing whether or not you're in the kingdom... i was just studying in the 4th chapter of Romans. i believe that you know you are saved when you have His Spirit living inside you and you are in right standing with God. how do you know when you are in right standing with God? in Romans 4:18-22, it's talking about the faith of Abraham:
Romans 4:18-22 (Amp)
[For Abraham, human reason for] hope being gone, hoped in faith that he should become the father of many nations, as he had been promised, So [numberless] shall your descedents be. He did not weaken in faith... No unbelief or distrust made him waver concerning the promise of God, but he grew strong and was empowered by faith as he gave praise and glory to God... That is why his faith was credited to him as righteousness (right standing with God).
so it is our faith in God that puts us in right standing with God. as long as we have faith in Him to empower us by His grace (the power of His Holy Spirit to overcome sin), and trust in His power, then that faith puts us in right standing along with our obedience and submission to Him. we cannot say we truly have faith in God, if we are not truly submitted to Him. our submission to Him proves our faith and trust in Him. thats why Paul said I put my trust in whom I have committed my life. when he committed his life to God, at the same time he became submitted to God, and becasue he was submitted to God he also trusted in God or had faith in God. and that faith puts us in right standing with God. the Bible says that salvation is by faith and not by works, but it also says that faith without works is dead. so there has to be balance.
we cannot turn his grace into lawlessness and still say we have faith in Him, because if we had faith then we would trust Him to help us overcome our sin instead abusing His grace by continuing in sin.
does that mean that we're not saved because we still have "junk"? no, it means that we need to trust God more to help us overcome the garbage that remains. the Bible says that the Word of God is alive and full of power (Heb. 4:12). so it is full of power to deliver us from sin and keep us from sin as long as we trust in God to do so through the power of His Word. when people ask me questions about this subject, i always tell them that the same Bible that saved us is the same Bible that'll free us from sin. if it has the power to save you from sin, then it also has the power to keep you from sin. we have been called OUT of darkness and into His marvelous light.
as far as what John said: look at what he said a few verses before that:
1 John 1:6
If we say that we have fellowship with Him, and walk in darkness (sin), we lie and do not practice the truth.
so not only do we lie if we say we have no sin, but we also lie if say we have fellowship (or relationship) with God, yet walk in darkness. then he goes on to say that Jesus Christ cleanses us from all sin. so it is the power that is in Christ that enables us to overcome sin. the same power that rose Jesus from the dead, now lives in us by His Spirit. and that same power that rose Him from the dead can also free us from sin.
in my personal life, the Lord has freed me from sin that i thought i would never be free from. and now He is still freeing me from things in my life. so my point is that it is a process. and its not an overnight process. we should all be a work in progress. the key words being "in progress." as long as we stay yielded to God and have faith in God, then He will complete the work that He has begun in us just like He's promised in His Word (Phil. 1:6). so just stay yielded, believe Him and trust HIm. its HIs truth (His Word) that sets us free (John 8:32).