The lookup_inst function will find any matching dimesions or parameters, as long as they are in the family table. Parameters must match exactly or else Pro/E will replace with the generic instance. The problem with string parameters is that they are easy to mess up. An extra space, or zero will mean they don't exactly match. Just be careful! Here is the syntax, straight from online help. They can explain it better than I.
This is an old thread, but it came in VERY handy today. And yes, to confirm the quote above: the LOOKUP_INST() function is designed to accept parameter values that are of type "real number" only. Unfortunately, even though family table instances can be defined by parameters that are integers, real numbers, or YES_NO booleans, the LOOKUP_INST() function will only accept real numbers. I have confirmed this with PTC tech support. They classify it as a "limitation."