Seconding a couple of drinking choices: You have to drink at The Green Parrot Bars along Caroline street are usually good. Tourists don't usually wander too far off Duval St. Schooner Wharf is also interesting.
For breakfast, although the tourists have found it and it is crowded, as stated above, you have to do Blue Heaven. Still good food and a bit of old Key West.
For the B&B, you may want to check out Simonton Court. While it is not inexpensive, it is a great B&B. Individual bungalows.

Also, are you flying in, or driving? If you are driving, there are some additional food and drinking choices.
Lorilei's in Islamarada at MM 82. Order your friend a Bushwhacker or 3. Don't drink more than 1 if you are then driving to Key West. Perhaps even stay the night in Islamorada, seeing Big Dick and the Extenders at Woody's. Stay at Holiday Isle. Great Tiki bar. Also, if you are into fishing, Islamorada is way better than Key West for fishing options.
And although touristy sometimes, Alabama Jack's on Cardsound Road is a must.