The auto-focus thing is because there isn't a drive motor in the D40 body, so the auto-focus only works with lenses that have a motor in them. These lenses cost more, though many of the recent lenses do have the necessary motors. There are some prime lenses that have them too, I believe that they are Sigma lenses. Though the old lenses will still focus manually.
I don't think that Nikon is limiting yourself, though that may be a biased Nikon opinion, and I'm sure there are plenty of Canon owners that would tell you otherwise
