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Go for LG Optimus 2X or Samsung Galaxy R if you can find them. Otherwise HTC Desire is a good choice too. I personally like windows phone, so if you are willing to consider it then Samsung Omnia W is the best choice.

I think samsung wave Y is the best one. It has good capacitive 3.2 inch screen, 3g, wifi, GPS and a good processor. Camera quality is decent too. It's available for 6.5k at http://www.smartprix.com/mobiles/samsung_wave_y_s5380-m2002.php

I think HTC Desire (http://www.smartprix.com/mobiles/htc_desire_a8181_-m144.php) is a good choice. It's available for Rs. 15,400 at saholic. It has 3.7 inch screen and good developer support (loads of Custom ROMs available for it).

I don't think LG phones have that feature (I think its called USB on-the-go). My friend has LG Optimus 2X and it doesn't support USB on-the-go.

This is a great deal if you trust your friend and yeah hardware issues are unlikely to appear till 1year. But make sure that its original and new.