Have you tried setting your "friends panel" to minimal via the Profile Preferences page? One second as I check something.
As for the border, set the
border of the "#friends #friendGroup li" to a value of none as well as setting the
width and
height as you please to "alter" the spacing as you please.
You could also set the width and height of the #friends selector to as you please as well as setting the display of the #friendGroup li to a display property of inline. ( if you want a vertical list )
In all, your code would look something like this.
Code
#friends
{ width: 100px; height: 300px;}
#friends #friendGroup img
{ display: none;}
#friends #friendGroup li
{ border: none; height: auto;}
#friends #friendGroup li p
{ display: inline;}