I was in the Marines...
The M16A1, was the only fully automatic M16 held by the Armed Forces (mainly Vietnam). The govt changed to a semi-automatic and three round burst model after Vietnam to prevent soldiers from doing the pray and spray and to require them to take more well-aimed shots. The next model of the M16 was the M16A2 which was used all the way until I joined. So they were still using the A2 in 2004-2007? Is my guess when my unit got M16A4's and a fair amount if M4's that were only given to NCO's and up.
The A2, A4, and M4 are ALL Semi-automatic/three-round burst weapons. The M4 IS NOT AN AUTOMATIC! And in my opinion it does not look like an AR-15. The traditional AR-15 more reflects the M16A2 model with no handrails and only two hand guards. However, I suppose the AR-15 can be modified to however you want it. The A4 has multiple handrails and hand guards, as does the M4 today, which allows for many more attachments and modifications. The only difference between the A2 and A4 (besides the handrails) is the A4 is slightly more accurate and has slightly different elevation and windage adjustments.
Visual differences in the M16A1, A2, M4, and A4 from top to bottom:
The M2 referenced in that picture is not an actual M2 at all. Rather, it looks like an M1carbine (shorter version of the full-sized M1). The M1 Carbine was semi-automatic, not fully automatic. Since your friend is referencing the 40's. I'm guessing he's meaning an M1 Carbine and since he is indicating it's fully auto, he is most likely referencing the M2 CARBINE, which is not be confused with an M2 which I will explain below. The M2 CARBINE (emphasis added), is a fully automatic version of the M1 carbine, but is not simply known as an "M2".
An M2 looks nothing like that picture. In fact an M2 shoots .50 caliber rounds, is a fully automatic (also has a selector knob for semi-automatic), and can cause fleshly damage just passing you, albeit very closely. The M2 nomenclature is often referred to as the "Ma"-Deuce. Get it?
M1 Carbine: http://en.m.wikipedia.org/wiki/File:M1_Carbine_Mk_I_-_USA_-_Armémuseum.jpg
As far as his definition of fully-automatic, I'm not sure where he got that from and it could possibly be the real definition, but in my opinion, a fully automatic weapon does not have to belt-fed to qualify, but rather only needs to be able to conintually fire upon squeezing and holding the trigger down until the need to reload or until you lift your finger off the trigger. So no semi automatic weapon or burst weapon would apply since it will not continually fire if trigger is squeezed and held. So any weapon that can do that, whether belt, magazine, or drum fed is an automatic weapon.
Anyway...just thought I would clarify and put my two cents in.