Your buddy probably had a software-related crash. Apple will not cover a software problem, they'll tell you to reinstall. If you can prove that it was hardware that caused your problem, then they will cover.
"damaged caused by operating the product outside the permitted or intended uses described by Apple" does not include running programs. If that were the case, installing any software would void your warranty. That clause is basically saying "your iBook is not a SCUBA tank." You are permitted to run any program you like on your computer, at your own risk. If your hard drive dies, Apple will replace it. If your system files get corrupted, you're on your own.
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