I bought my sister a Fuji FinePix a340 (looks like it's replaced by the a345 now) last December, she really likes it. It's not super thin like that Sony DSC-T1 (I'm assuming that's what your friend had), but I borrowed it for a wedding and it fit great in my shirt pocket for quick pictures.
That Sony DSC-T1 is pretty affordable, under $350 shipped at newegg. Sony makes some very nice high end cameras, I'm not sure how that particular model is. I'm not a fan of memory sticks at all, although there are a few third party manufactures now and prices have dropped a little (still nowhere near CF/SD/xD though). Memory stick prices are ~$34 shipped for a 128mb stick, where a 128mb card is $16/$16/$25 for CF/SD/xD (all prices shipped from Newegg)