the smallest suggested reef tank size?

Its harder to take care of smaller tanks, the water is less stable to hold to the temperature and if water evaporates the salinity will increase alot. So I guess I would tell your friend that, and to get a bigger tank alot of people say 30 gallons or larger. Its up to him though, its not a good way to test the hobby to do a little tank because keeping a 5gallon tank is harder than keeping a 50000000 gallon, i'm pretty sure. But with a tank that big you might have alot to clean.

There is certainly an explosion of "nano" tanks, and it is possible to have a 5 gallon successfully. But, to paraphrase wastememphis, a small tank will melt down faster if something bad happens.

In a way, it's more of a "headfirst" jump to do a smaller tank, because you have less room for error.

Smaller isn't necessarily less expensive. The tank itself will be cheaper, but tanks are cheap compared to live rock and lighting. You'll buy less live rock, but may pay more per pound, because you won't get a bulk discount.

There are very few fish that will be OK in less than 10 gallons. Neon gobies will work.

If your friend wants to do a small tank, a 10 is probably a good minimum size. The tanks are cheap, lights are available, and there's a little room to play. 20 would be better, and many authors give 40 as a minimum for a first SW tank.

On www.nano-reef.com they have some good articles on setting up small tanks. They also have a good listing of what size tanks are possible for what fish. I would have to agree that anything less than a 10 gallon is really not suitable for fish. Reef type fish tend to have larger swimming areas and get much bigger than good old tetras.

Another option is to just keep a reef tank with some invertabrates like a crab and some snails. It can be interesting as well.