You don't say how long you and your friends will be in Europe, but I assume it's for a couple of weeks. Since you guys will be traveling to so many countries, an international SIM card (like UM) would be your best bet.
As for the phone, a good quad band GSM phone isn't that expensive and will last for years. If you don't want to buy new, buy used (like on ebay), but make sure your phone is unlocked and will work on the GSM bands used in Europe--900/1800. (In the States, we use 850/1900.)
Khalisha
Zengo Wireless