Sql-server – Cluster communication – SQL Server Failover Cluster

Failover is easy to do. That just requires shared storage, and a couple of servers.

SQL Server doesn't support scale out to multiple nodes. However a properly designed database with only a couple of thousand users should be able to run on a dual chip server pretty easily. My companies systems support about 35k transactions per second on a quad chip server (with 6 cores per chip).

Like any database server you'll want to use multiple LUNs for each part of the system. 1 for data, 1 for indexes, 1 for transaction logs, one for tempdb.

If you can't afford a SAN (you'll be looking at a six figure purchase for the SAN alone) then you should look at database mirroring instead. This when used with a witness server can give you automatic failover in the event of a failure, and doesn't require shared storage. The different volumes for storage should still be used.

Before you can design your high availability solution (clustering, mirroring, log shipping, etc) you need to figure out what you are trying to protect against. How much data are you willing to loose? How long can you afford to be down during failover?

If by AlwaysOn you mean "Availability Groups" (which is typically the case), then you can most definitely use your failover cluster instance as a replica.

For this to be an Availability Groups design that is actually useful in the sense of AGs, then you would most likely want another server to host another replica in the Availability Group (for whatever it is that you're looking for: HA, DR, reporting, etc.). All of the servers that are going to be participating in the Availability Group need to reside in the same WSFC.

There is no point in having AO when only 1 instance of SQL is running at a given time

The replicas in an Availability Group are individual SQL Server instances (whether it be a FCI or standalone instance), so each of the replicas are "running" in a normal condition.

what would I need to set up AO?

Technically speaking? You would just need another instance of SQL Server to have as an additional replica for the AG.

Realistically speaking? We can't answer that right now with the current state of the question. We'd need to know exactly what you want your Availability Group for.