Ah, I see what you mean.
I must admit I assumed that the OP and her friend got their second or third choices. Reading it again, I see the OP doesn't actually say that.
There is absolutely no way a child who hasn't requested a particular school should be admitted ahead of a child who has. If that has happened a clear mistake has been made and the OP and her friend should be complaining long and loud to the LA.
However, it is quite possible for this situation to arise where parent A puts school X as first choice and school Y as second choice whilst parent B puts school Y as first choice and school X as second choice. Depending on the admission criteria you may find that parent A's child gets a place at school Y and parent B's child gets a place at school X.
It used to be the case that many schools would give priority to those children who named it as their first choice. That led to problems for parents. Imagine you really wanted to get your child into school A with school B as your second choice, both schools being very popular. Under the old system if you missed out on school A there was a good chance you would miss out on school B as well - you'd only made it your second choice and it was already full with children who'd made it their first choice. For that reason admission authorities now have to use the "equal preference" system, which means whether you make a school your first choice or your last choice makes no difference to your chances of getting a place at that school. Your order of preference does still count, though - if the allocation process shows that you get into your first and third choice schools, say, you would only be offered the place at your first choice school.
I think the main problem with the current system is that there is no provision for popular schools to expand. Not all would be able to do so due to limitations on their site, but many could add more classrooms and accept more pupils if they were allowed to do so. That might leave the less popular schools half empty, but in my view it is up to them to sort their problems out.