Well your freinds alittle out of date...... They don't make pentiums anymore....
But Intel is the power house, but you pay for it. An AMD is about 87% as powerful, but costs 75% as much. So for a smaller budget, its cost effective to go AMD due to their cost, and take the minor hit in power.
NOW that said... Most people won't really see the smaller performace of the AMD vs the Intel.
The bundle will run hd video without a hitch... Gamings another issue the 4290 is the better of onboards but its still lacking for highr gaming. You'll want to eventually get a dedicated one. But its head over heels above yours.
Yes to the install disk. I'd try to boot with the disk drive and see what happens.. then try a repair. I've got lucky a few times and it kept everything just fine.
I think you'll have a few troubles, but nothi ng that'll be to hard to figure out.