ahh, I would suggest Lunarpages
www.lunarpages.com they are not free....about $100 per year(for a shared server plan), and cheaper if you go for a 2 year plan. you can host up to 10 sites under one plan. I think you get a free domain, but I would register the domains myself because, if you get the free one they actually "own" the name.
I host about 45 sites with them and the speed and uptime are about the best around. plus you get a bunch of Coffee Cup software, if you need it.
you and your friend could shell out 50 bucks each and have a years worth of hosting. then when you get new clients, you can just add them on to your plan, and get to work. no money out of pocket.
best of luck