I have also had problems using precisions bombing... I've tried using Stealth Bombers (and I think stealth Figheters). The precision bombing icon shows up at the bottom.
When I click it, I get a circle with a slash on everything I put my cursor over, EXCEPT my OWN cities.
Just for kicks, I tried clicking on my own city and it did precision bomb my own city, knocking out a unit of population (even though I had improvements). I didn't pay attention if it bombed a foreign national in my city, or one of my own. I thought precision bombing was only supposed to kill citizens if there were no improvements?
Anyway, the option is there--I just can't target anything useful.