In my view, some of the best leaders are found among the ones that have worked their way up through the ranks. It doesn't work with everyone - hence the term "raise to your level of incompetence", but I'd much rather be led by an experienced co-worker than a pointy haired "manager" who has a very limited understanding of what's going on.

Without knowing your company culture and organization it is hard to make any hard recommendations. In an organization where company policy dictates that you NEVER will have that position permanently I would be sceptical for the reasons Leigh posted. In a more practical oriented organization I'd jump for it. And remember you always have the option of formally educating yourself in some areas that the company would like to see in their leaders.

Go for lunch with your buddies - otherwise you're sending the message that you've just become a pointy haired snot who's too good for their company. But be frank whenever there's a conflict between your role as boss and your role as buddy. They will respect that. Remember that there is ALWAYS some inter personal relationship that does not follow organization charts. Handled correctly, such relationship are not a problem. Make a mess out of it and they will be.

Make no speeches and be frank and honest.