Send your friend to Recycle a Bicycle. The East Village shop is their main store; I haven't been to the store in Brooklyn. Recycle a Bicycle gets used bike donations and trains kids to refurbish them (the kids get to keep a bike once they've participated awhile). The bikes are cheap and there's a pretty good selection. It's a great organization and a good place to volunteer if you're willing and able.

Other than Central Park do people actually ride bikes in NYC? I was in NY in June last year and think I saw one cyclist in three days in midtown. The streets looked pretty dangerous for bikes to me.

Um, your friends were playing a practical joke on you. That was not New York you were visiting. New York has more bikes on the street and a more dynamic and enthusiastic bike culture than any other city in North America.