Yeah, sock yarn can be pricey. But I second the Fixation suggestion... it's usually around $5.50 a ball, more for the variegated colors. And Esprit (I think) from elann.com is the same thing as Fixation, but I think it's cheaper. For wool sock yarn, the Essential sock yarn from Knitpicks is pretty good. It splits a lot when you're knitting with it, and the color range isn't great, but it holds up really, really well through wearing and washing. And it's cheap!
I finished my Something Red (though it's really purple) from Knit and Tonic a while ago, but I just today got around to posting pictures. I love it, though; I've been wearing it all the time and getting tons of compliments on it. Recently these sweaters have been popping up all over the place, and I can totally see why-- it's a quick pattern, a great intro to top-down sweaters (it was my first top down sweater), and it's so darn cute. I made mine using Blue Sky Cotton in Thistle, and it took me about a month and a half to knit-- a huge relief after knitting my last couple of sweaters in DK weight yarn or lighter. Anyway, here it is:
Front, again (this one shows the whole sweater, although the color is way off):
I totally disagree that you should use something inexpensive. I mean, don't use the most expensive yarn available, but get something soft and beautiful to start with (as welll as smooth and bulky, cause that makes it easier to learn). And get yarn you like, so that you'll like what you make, rather than something that seems "good to practice on"-- it's practice, but you're still knitting an object! But knitting with quality fibers makes it easier to like knitting, in my opinion. Had I learned to knit using scratchy acrylic, I probably wouldn't have kept it up.
As for needle size, there's no one size that's best for beginners, no matter what anyone says. There are yarns that are best for beginners, and those are worsted to chunky weight yarns. But the needles you should use are the ones your yarn's label tells you to use, and a beginning knitter should use yarn marked for anything from a 7 to a 15.
I can't tell whether Luna's grey scarf is knitted or crocheted, but if it's knitted, it's certainly something more complicated than drop stitch-- there are some lace scarves in the most recent issue of knitscene that look very similar to me, though they might just be wrapped the same way and not at all similar. http://www.knitscene.com/2007/fall07projects.asp (teardrop scarves, a little over halfway down the page)
And all the knits in the film are great! Both Cho's argyle-ish hat and Luna's hat in the same photo as Luna's lacy scarf are awesome.
What they do in that pattern is just knit a scoop neck and then gather it when the sweater is done. If you wanted it without the gathering, it would be similar to a v-neck, but with a different rate of decreasing: decrease pretty often (like once a row, I'm thinking) and at a steady rate for a while, then decrease very infrequently for a while, then knit straight for a couple of inches towards the top.