1

AFAIK ordering in advance via bahn.de is always cheapest, as the fares go up as time passes and categories of tickets sell out. Booking a specific seat is not essential.
If it's running, consider taking the direct night train, which saves you the price of a hotel night, and also saves you that annoying bus ride (there's construction on that route). Do book a couchette or sleeper bed for nightrest and safety.
Have a look at www.seat61.com for great train tips, all over the world.

2

Frankfurt to Prague will definitely cost a lot more than 49 Euro if you're buying it on the day you're travelling. I would guess that the DB bus is considered to be a train, so passes should be valid - but from what I can tell, reservation is compulsory.

It looks like this bus is replacing the train that used to run that route. I wonder why they ended that service...

3

paul - I heard it's to do with long-term construction along the Prague-Germany tracks...

4

It will definitely be cheaper to buy a Savings fare in advance, rather than buying a walk-up full fare on the day of travel.

If you want to get seats for the 3 of you together, in theory you should be able to book your own ticket on bahn.de without a seat reservation, and then make a separate reservation-only booking on bahn.de for all 3 of you (ie: just seat reservation, no ticket). This works for most train connections - but might not work for the DB Express bus, if seat reservations are compulsory (as then you couldn't buy your own ticket without a seat reservation). I also don't know if the Rail passes are valid on the DB Express bus - I'd guess they are (as the DB Express Bus seems to be treated the same as an IC train) but I'm not sure.

Note that there are trains between Nuremburg and Prague - but for some reason they're not operated by DB, but by Czech Railways and ALX. They're a bit slower than the DB Express Bus (because the train makes several stops en route), but personally, I would prefer to travel by train rather than bus.

If you de-select 'bus' under advanced search options on the bahn.de journey planner, it will show these trains. If you search for connections from Frankfurt to Prague, it will basically give you 2 options:
1) ICE from Frankfurt to Dresden, and then EC from Dresden to Prague. DB Savings fares (Europa-Spezial) are available on this route. If you want to be sure that your friends can use their Rail passes, and also make seat reservations together (as outlined above) this might be the easiest route to take. (It's not the quickest, but the journey from Dresden to Prague along the Elbe is normally very scenic. However, note that in the last week of December there is engineering work between Dresden and Usti nad Labem, and so you have to take a rail-replacement bus for that stretch. As this bus is clearly a replacement for a train, it shouldn't have any question-marks such as whether rail passes are accepted, or seat reservations are required).

2) ICE from Frankfurt to Nuremburg (or Regensburg) and then the CD/ALX train to Prague. The Europa-Spezial fares are not available on this route, but you could buy a DB Sparpreis fare to the last station in Germany (Furth i Wald) and then buy a separate ticket on to Prague. (There are no discounted, buy-in-advance fares on the CD/ALX train, so I think you could just buy the ticket on the train. From the first station in Czech (Domažlice) to Prague is 218Kc, about €8.50. There are also no seat reservations possible on this train).

(There is actually a 3rd option, via Cheb, but that is generally slower and involves more changes).

I would also normally echo Jeroen's suggestion to consider taking the Citynightline sleeper (leave Frankfurt 00:54 and arrive Prague 10:25, after a reasonable night's sleep). However, given the engineering work between Dresden and Usti nad Labem, you'd have to leave the sleeper around 8am, for the rail-replacement bus - so you'd only get 7 hours in the sleeper.