Step up to the S60, Its the same motor has a better 5spd tranny and is roomier and handles the road a lot better.
You can pick up an 02 mint with 50k ish miles for about 10-15k.
I have driven my moms and its soo much fun, the gearbox is smooth, clutch is wierd but its got wonderful leather bucket seats and is surprisingly roomy even though the wheelbase is small.
The S40 just looks like its to small to be what your looking for. You and your BF wont be happy
Plus I know the S60 back seats fold down so you can fold those down and put the pugs in crates in the back.