He claims that when in a surprise round, you attack once(due to them being flat footed) and that's it. He somehow thinks taht once you attack the opponent, it becomes un-flat footed.
That is correct. Well, not the un-flatfooted part. You only get a single standard action in surprise round, so unless you can get multiple hits as a standard action, you can only attack once, at best.
*edit* Now, the FIRST round, BEFORE they act, however...
Re: Multiple attacks. Rules of the Game archive:
http://www.wizards.com/default.asp?x=dnd/rg/20040302aPersonally I think all the words can get in the way of understanding. It is actually spelled out in the SRD, too, when it's described in Rogue's section.
IF ATTACK AND:
- Target denied dexterity bonus (subtly a different thing than flat-footed) OR
- Rogue flanks target
THEN: EXTRA DAMAGE.
there's some further ruling related to the amount of extra damage - such as it being zero, but that's not here nor there in determining if sneak attack happens.