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As for what you should do, nobody can answer that for you. It's subjective.
Yep, you can quest and all together without being in same alliance, PvE wont be affected at all
...but anything PvP, you will be enemies
None of you has much investment, so, rolling new characters in same alliance shouldnt be too hard
My opinion anyway
Yeah I thinked of rolling a new character, but we don't usualy do mutch PvP at all, so probably it will not be a problem. I've enjoyed a lot my Norn and like his character model and stuff, at same time I've never enjoyed the elfs very mutch (My pals went for Alemeri) haha ^^'
Maybe later I'll do a Kgajiit for cyrodiil stuff, but for now I think i'll just keep going on my norn.
I would recommend to start a new character, and to buy the "any race, any alliance" upgrade if you want to play a race that isn't part of the alliance your friends play in. You start with 500 crowns when you create your ESO account, so buying a one-month subscription would give you enough crowns to buy that upgrade, plus all other subscription perks.