For your purposes, I would recommend buying a 430.
I had a 580 for over a year, then gave it back to the friend (lol) and bought a 430. I don't notice the difference that much, other than the longer recycle time and the inferior reach (which I only notice outdoors primarily).
When you use the flash, be sure to either use a bounce card (rubber bands and index card, google it) or just point the flash face at the ceiling. That should work just fine.
For an event like a birthday, indoors, I would shoot it as zoomed as possible to separate the subject from the background as much as possible.
Practice shooting spontaneous portraits around the house, out with friends, of the wife (She will probably HATE this), etc. As valuable as all this technical information is, getting the shot is what really matters. Also, familiarize yourself with all of the controls of the camera. you dont want to miss the money shot because you could not figure out how to change your ISO, or whatever.
As far as the payment goes, its up to your discretion. I have been in similar situations, so I speak from experience.
My advice: Tell the mother-in-law that you appreciate the offer, but you would like to do it pro-bono, for practice. Brownie points, plus you avoid ANY weird vibes that could arise from a "business" deal gone awry.
But I don't know the situation, so use your best judgement. Have fun and learn