Sharing photos with friends using Dropbox

The best option is to roll-your-own. There is an opensource option that takes a bit of set-up, but is fairly good and does respect permissions, however, it does require you to generate everything for your clients. In any case - worth checking into:

ownCloud

ownCloud gives you universal access to your files through a web interface or WebDAV. It also provides a platform to easily view & sync your contacts, calendars and bookmarks across all your devices and enables basic editing right on the web. Installation has minimal server requirements, doesn’t need special permissions and is quick. ownCloud is extendable via a simple but powerful API for applications and plugins.

ownCloud started with a keynote by Frank Karlitschek at Camp KDE’10 where he talked about the need of a self-controlled free and open source cloud.

No. You can invite your friends, but they have to make a separate account for each email they own.

This also means that unless your university mates are not clever, they would already have upgraded their own dropbox by inviting their own 2nd email address, and you're out of people to invite.