"Auf" is used both with dative and accusative cases. This depends on the context. When used for indicating places, it is used with dative (Der Teller ist auf dem Tisch), but if it indicates direction, it is used with accusative (Ich stelle den Teller auf den Tisch).
As far as I understood, this phrase may indeed be a toast. In this case "auf" requires accusative case. See http://www.duden.de/rechtschreibung/auf_Praeposition (4. zur Angabe des Ziels, des Zwecks oder Wunsches).
"Freunde" is not preceded by an article. That's why you need to use the strong inflection. Give this a thorough read:
1- bread that has been heated until its outside is brown and hard
2- an occasion when people all drink together and say someone's name in order to express their admiration or their good wishes
Be toast - to be going to have serious problems, for example because you will be severely punished
Be the toast of something - to be very popular in a particular place or group
Warm as toast - warm and comfortable
I´m not a native English speaker. By context I get it means something like "It´s wrong", but I can´t understand how.
Prepositions depend strongly on the verb. Here the verb is (even if not mentioned): "make a toast" = "anstoßen". As this verb (lit. to bump (the glasses) at each other) already contains "an" as a prefix another "an" seems ill fitted. Otherwise "an" would actually fit for a preposition here, but as it is...
Well the phrase was already coined. I cannot really say how such things come together but the phrase is "auf jmd. anstoßen/einen Toast ausbringen/trinken". I find that "an" could fit if the verb was different but it isn't so it does not. I mean in other similar situations: "an jmd. denken", "an jmd. erinnern", here "an" works perfect and the person has not much of a different role to play. It just depends on the verb. Maybe I miscalculated the role that the "an" in "anstoßen" plays but it seemed like a good reason not to use "an" as a preposition here.
Duo is a learning experience! Without context and without prior knowledge that it is a toast, how can Duo reject all other possibilities for a preposition with an extremely broad range of meanings. For instance, why couldn't it also be "For new friends"? As in, Welcome to the neighborhood, here is a housewarming gift, "For new friends!" Endless other possibilities, or so it seems to me.