I'd look in some pawn shops.. it's like getting a dog from the pound - they love you for it(guitars have feelings, I'm quite certain), and you can get some great stuff for cheap. Lots of great albums were done with junk-shop-stella guitars.. Make sure the neck is basically flat(with just a hint of concavity from about the 10th fret towards the bridge), frets are crowned on the top and not flattened out from playing, and the strings don't buzz(check each string at each fret and you should have a nice clear tone).. and you're good to go.. it will probably have crappy strings on it too, and new ones will make it sound a whole lot better..
Start with an acoustic.. an electric means you have to get an amp and a decent one at that.. many a nice electric guitar sounds like ***** with a crappy amp - and they aren't cheap.
As far as lessons go, I wouldn't.. buy a big chord/scale chart poster and a music book of songs from his favorite band/s (with tabulature if he can't read music, but he really should learn to read music).. I just think it's best to learn your own way to play.. not saying lessons are bad but, alot of my favorite music was made by people that never had a music lesson.. another idea is to get lessons from a piano teacher or sax player or something.. call me weird..
