Alright, since I'm probably the only person monitoring this board that actually worked in a yeast lab, I feel obligated to respond.
Working with yeast is great. You can do all sorts of cool genetics that are impossible or at least very difficult in "higher" organisms, including the ability to do sophisticated screens and to knock out whatever gene you want with only a days work. You can do a whole array of experiments in yeast, starting with genetics and proceeding to protein biochemistry and microscopic analysis. Basically, you are only limited experimentally to what you can dream up. Frequently in grad school the question was "what should I do" rather than "what can I do".
Additionally, yeast have alot fewer genes than mammals, roughly 6200 vs 20,000-40,000 or whatever the current number is, making things alot simpler. However, you'd be surprised how many yeast genes have mammalian homologs. Basically, evolution has stripped out all the nonessential genes, so you know that everything you work with is of critical importance. I worked on the vacuolar transport pathway, the pathway through which proteins move from the late golgi to the vacuole. The proteins which funtion in this pathway are on average about 40% conserved relative to mammalian lysosomal transport protein, if I remember correctly.
Your friend's claim that yeast labs are passe is (IMHO) incorrect. There are alot of yeast oriented labs out there doing cutting edge research and getting published in big name journals. My lab, for instance, was HHMI funded and published in all of the big cell and molecular biology journals, including Cell, EMBO, and JCB.
Of course, I have to admit that my days in the yeast world are over now. It was fun while it lasted, but as an MD/PhD i need to get involved in something a bit more clinically oriented.
-mrp
