was expecting my copy of Windows 7 to turn up today as a friend who ordered at the same time has his but mines not turned up. Question is, can I legally install his copy and just enter the serial number later when my copy turns up or does it insist on the serial during installation?
You'd be fine to do that, no problems at all really. If you bought different versions though (eg HP v Ultimate) make sure you install the version YOU paid for. You can do that either by choosing it at the prompt that appears during install when you choose not to enter a serial, or by ripping the install DVD to a USB and removing the relevant config file.
can anyone else confirm whether the full retail release allows you to skip entering a product key on installation?
Yes you can skip entering a product key on installation. You need to enter a product key to activate it, but Windows gives you 30 days to do this (90 days if you rearm it twice).