A better alternative (and possibly no more expensive than the cheap stuff you'll use a couple times and replace anyhow) would be renting gear. It will be a bit better quality, too.
So, why is quality an issue? Because your goal is to get the friends hooked on the sport (so they can carry your rock collection some day.
) Better gear is not as likely to leave them soaked after a rain, or with bruises on their shoulders or hips from a poorly made, ill-fitting pack. It's usually a bit easier to use, and less likely to break.
If you use cheap gear, and want to avoid being wet and cold, you simply have to choose your time and place more carefully. The cheap stuff often doesn't function as well in prolonged rain, and a blanket probably won't keep you warm at 20 degrees under a tarp. So don't go out when the forecast calls for that (or choose another spot where the weather is more suitable.)
Having said that, I will tell you that, starting out, I used cheap gear, for two reasons: first, it was all I could afford, and second, there was no local outfitter who rented gear. So, if you decide you do want to go the cheap route, I'd start with a coated nylon tarp (the lighter, flexible "cloth" ones, or the good old Walmart green or blue "plastic" specials) - or even just a big sheet of Visqueen from the hardware store (see if they also sell something called a Vis-clamp, to make places to attach guy-out lines.) Get an extra piece of Visqueen or a plastic "painter's drop cloth" for a groundcloth. While you're at the hardware store, pick up a rake handle for everyone to use as a hiking pole; they'll also be tall enough to use for tarp supports. You can buy aluminum pots at Walmart to cook in, and you can pick up a spoon for everyone, too. Water bottles are free - and sold in 12 packs, already filled. Make a "cat" style alcohol burner (others will have to help you out here.) You get the alcohol fuel at the hardware store, too.
That's a start, and pretty much all I can remember. I'm sure others can help more. Also check out the Make Your Own GEar forum hear - great way to end up with good gear at a bargain-basement price. But I'd still recommend renting over buying cheap.
You're right; blankets will work.