frozennorthpole your babygroup is just like mine, except a year later (DS1 was born in Sept 07, but others in babygroup arrived early in August 07). Your DD will not start proper school (I'm assuming we're talking about the English state primary system here) until September 2013, when she will be among the very oldest in her year. Your playgroup friends' August 08 children will start school in September 2012, when they will be the youngest in their year. IE - their children will be a whole school year above your DD. 'Starting school' means when they start in the Reception year (also sometimes called Foundation, I think) in a primary school.
If your friends' children are going off to 'school' now, then this means pre-school. Things are confused by the fact that pre-schools are sometimes attached to primary schools (and it's particularly confusing with private schools, because some of their pre-schools seem to be treated as if they're just the first year of proper school). But they are separate - 'pre-schools' are not the same as proper 'school' - they are effectively the same as 'playgroups' or 'nurseries' (except that nurseries also take babies).
So.... What your friends mean is either that they're just starting to receive the free entitlement, or that they are moving their children from nursery to pre-school. The main reasons for moving a child from nursery to pre-school at age three are 1) that pre-schools are often cheaper than nurseries - you still only get the 15 hours free, but any additional hours that you choose to do might well be cheaper, and 2) that pre-schools are in theory more geared up to the needs of older children. However, many people (me included) choose to keep their children in nursery, because they often have a 'pre-school room' that's just as good as a dedicated pre-school, and/or because they work out of home, and need the longer hours of childcare that a nursery can provide.
So (sorry for waffling) - to answer your specific questions: you will apply for a proper school place (ie a state primary school Reception place) this time next year - ie between about November 2012 and January 2013. Your decision about whether to move your DD to a pre-school instead of or in addition to your current nursery before then is likely to depend on 1) your childcare needs, 2) your finances, and 3) above all, whether you're happy that the nursery is providing what your daughter needs. Might be worth looking around a couple of pre-schools to compare?
Incidentally, the whole business is also complicated by the fact that 'compulsory school age' is not reached until the term after your child's 5th birthday - so in theory, your playgroup friends could choose to defer their children's school start until September 2013 (though at this point they would go straight into Year 1 rather than Reception, so they would still be the year above your DD). Not many parents choose to do this, though.
Sorry, long post. I'm quite new to all this, so someone please correct me if I've got anything wrong!!