[Aino]

There is a new 35mm f/1.8 Nikon lens that is very sweet and affordable - I think it would be nice for a portrait lens and I believe it will focus with the D40. I have read that people are very pleased with it! And it is a prime, and I think primes are always a good investment.

On the other hand, for portraits perhaps it is nice to get a little longer lens - how about the Nikon 18-105mm - it came out as the kit lens for the D90 - but everyone says it is a very nice sharp lens with a useful range?

I don't know what price range you are thinking of, but there are expensive, but very good lenses:
Nikon 16-85VR - expensive, one of the best
Tamron 17-50mm - sharp, afforable, comparable to Nikon, but half the price (the lens I got yesterday)
Then of course there is the Nikon 18-200mm - which is useful for anything.

There are other primes too, such as Tamron 90mm and Sigma 105mm which are great for portraits and double up as true macro lenses too. And reasonable priced.

If I had a limited budged, I think I might have gone for the Nikon 18-105mm because it is a good useful range and produces great sharp photos.