Help me setup a windows 7 network from scratch

A friend of mine has asked me to setup his office network. I am not a sys admin but I want to use this opportunity to learn the trade.
We have 10 windows 7 workstations and these workstations will be used by 20 users. The workstations are connected by cable to a router which is connected to the internet.
Users should login using windows domain authentication.
Do I need to install windows server in one of the workstations to use domain authentication?
How should I assign IP addresses, static or DHCP?

NO NO NO!

There is A LOT more going on here than you realize and that we could explain in a setting like this. But, if you're determined to do it, here's the 30 second explanation:

You will need to buy a server machine, DO NOT use a regular workstation to power this. While it's true a server OS can be run on workstation class hardware, you WILL want the extra security and redundancy such as RAID, UPS, redundant power supplies, etc. Dell makes a very affordable SMB server line that's perfect for about 50-75 users.

Networking:
OF COURSE USE DHCP, there is ZERO reason to use statics across the board.

For a network this large, plan to spend a few thousand on REAL business class networking equipment. DO NOT go buy a linksys router and hope to plug everything into that. A firewall appliance wouldn't be a bad idea either. I'm a big advocate of Cisco, but I'm the type that thinks it's better to spend more and get a quality product than save a few bucks and hope for the best.