Well, first, making a contact in Address Book has no relationship to the FTP server. The address book is a database that Applications can share, but you'll notice there is no password field, etc, in the address book. It's intended for human use only.
What version of Mac OS X are you running (10.5 or 10.6?)
How did you set up their account in System preferences -> Accounts?
Is it a Sharing only account? (Please ensure that it is not an Administrator account)
What does the FTP log show? (Utilities --> console --> All Messages & filter using FTPD)
Well, you should see a login for each user:
10/10/09 7:31:45 AM com.apple.ftpd launchproxy: /usr/libexec/ftpd: Connection from: 127.0.0.1 on port: 49341
10/10/09 7:31:45 AM ftpd connection from 127.0.0.1 to 127.0.0.1
10/10/09 7:31:49 AM ftpd FTP LOGIN FROM 127.0.0.1 as catherine (class: real, type: REAL)
10/10/09 7:33:01 AM ftpd Data traffic: 0 bytes in 0 files
10/10/09 7:33:01 AM ftpd Total traffic: 1319 bytes in 1 transfer
Where are your friends? Are they connecting from the internet?
Do you have your computer's firewall active? Or if your friends are connecting through a different network (ie internet) does your router have firewall rules setup to allow port forwarding?
http://portforward.com/ Can walk you through setting up forwarding rules for your router...