I have a fluval cannister and I really don't like it compared to my other caninster filters. However, since you were given it for free, it IS a good filter and will work for you nicely, so you might as well use it. Hang on back filters like AquaClears are very inexpensive and work well, but they are noisy. Cannisters are super quiet and work well, but are a little extra work when it comes to cleaning. My biggest complaint with my Fluval was getting the prime going again after disconnecting it from the tank. Cleaning the actual media is a snap, as it just disconnects, you take it to the sink, and rinse everything out. No big deal. I'd rather do that than lean over a tank and fight with a hang on back filter and cord LOL.
I do agree with Dadof4's recommendation of changing the tubing to some smooth stuff, I wish someone had told me that years ago! If I ever set mine back up, I'll do that (its sitting in a friend's basement at the moment).
Anyways, I would set up your tank with this filter, then play with it a bit. Get used to how it works. Empty half the tank, then refill and see if you have issues keeping a prime, etc... BEFORE you buy any fish. It will probably work just fine for you, if you are able to follow directions to set it up.
On to your actual setup, yes, you'll want to use argonite sand for a substrate. Generally enough to cover the bottom with an inch or so, so one bag would probably be enough for a 29 gallon tank (I'm assuming you dont want to bother with live plants or anything). You can also use crushed coral, but personally, I found it traps food and waste and grows a lot of algae. I am much happier with argonite.
You'll also need marine salt (Instant Ocean for example) and not "aquarium salt". And a hydrometer (cheaper, only a few bucks, but not as accurate) or refractometer (more expensive but much more accurate) to measure your salt levels. If you get a hydrometer, be sure it goes all the way down to 1.000, as some start higher than a figure 8 would need. A 29 gallon tank holds about 25 actual gallons of water, so a 200 or 250 watt heater would be perfect, so you should be set there. Is the one you have glass or titanium? If it is glass, be careful, as pulling a hot heater out into cold air can and will crack it, giving you a nasty shock (just mentioning this since you said you've never had a fish tank before).
Read the cycling article, so you know what to expect for getting the tank going. A brand new tank setup will kill your fish unless you pre-cycle it, and get the bacteria going. This takes a few weeks of "feeding" the tank with fish food or ammonia, or, you can get a more expensive product called BioSpira to "instantly" cycle your tank. Most of the other products such as "cycle" will not work, so don't waste your money on them. You will want to cycle your tank at the salinity you are going to be keeping the Figure 8's in, so get the salt, etc right away.
As far as the actual fish, you're working with about 25 gallons. So you could go with two figure 8's, or one figure 8 and a few bumblebee gobies, that sort of a setup. If you get any gobies, make sure you create a lot of caves/hidy holes because they can get territorial and like to claim their own area.
For feeding, puffers generally do not eat your typical flake fish food, they like meatier stuff. Usually they like things like defrosted bloodworms, shrimp, squid, (things you can get at most pet stores that carry fish) or live food like blackworms, earthworms and snails.
Be prepared to do weekly 50% water changes, as puffers are pretty touchy to dirty water. Its not that hard, and its a lot easier than buying all kinds of chemicals to try to keep your fish healthy
Hope that helps some, any more questions feel free to ask!
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No seriously though it is all good advice though so do listen to it! 