So here's my situation, I let my friend use my phone and believe it or not he gives it back 10 minutes later and goes "look you can get all these apps free now" i already knew what jailbreaking was and had no intention of doing it because it would void warranty/insurance (I believe) i'm now stuck with an iPhone 4.0.1 in DFU mode and the restore will not complete

Can anyone help me here?

Sure. If you're 100% certain that you don't ever want to jailbreak (there are many more legitimate and great uses for a jailbroken phone than just software piracy, and while they claim it voids your warranty, if you un-jailbreak before you return it it's usually not a problem), then you can restore to un-jailbroken status by plugging into iTunes and telling it to restore your firmware. When completed, do not restore from a backup created with the jailbroken phone.

Your phone will be un-jailbroken.

That said, if you restore to 4.0.2 right now and do not have an SHSH on file, you will lock yourself out from being able to jailbreak with the current generation jailbreak, so think long and hard about doing it before you do!