Unfortunately, your friends likely have no recourse and will have to cover the cost of repair or replacement themselves. You mentioned the furnaces are older, so it's unlikely they're covered by any kind of manufacturer's or installer's warranty. Even if the previous owners knew of the condition (which seems unlikely), proving they knew would be difficult at best. And it is true that a home inspector would not routinely test for CO and could not be reasonably expected to detect that situation.
However, I would advise them to read that homeowner's warranty very carefully, and see what it says about HVAC systems or "preexisting conditions." Of course, many insurance companies are in the business of denying claims whenever they can. Just because the problem was discovered now does not mean it was necessarily preexisting. If there is any wiggle room in the policy contract, I would argue hard against the insurance company. Making a fuss can often yield results, and if they don't like the stock answer they got on their first call, they can escalate until they get results. Even getting the insurance company to cover part of the cost, or the cost of repair vs. replacement, would be a win.
If it gives your friends any psychological solace, they can look at it this way: they knew they were buying a house with an old furnace that likely had little life left in it, so it was only a matter of short time before it was going to fail. Now they will get a new furnace that will last many years, and more importantly they didn't die of CO poisoning. Next time they'll know to keep a little cash on hand for needed repairs. One last piece of advice: since they spent all their cash on the down payment, lots of HVAC places or Home Depot/Lowe's offer one year, zero percent interest credit accounts to install a new system. They could take advantage of this, and just be sure to save up enough over the next year to pay it in full so they don't get socked with the high interest rates one year later.