I'm almost 99% sure you won't get a NIOS in that device (low on resources and Altera probably only supports APEX and up for NIOS).
The cheapest out there is probably the Cyclone board from Parallax. (Cyclone is a low cost version of Stratix).
For 200 (USD I'm assuming) is a little much for the UP2 board if you ask me. With the parallax board you will still have trouble getting an OS in there though (the board is just an FPGA, with some RS232 download capablity)
Also what school do you go to so that we can all boo them for making students pay for an FPGA board
http://forum.niosforum.com/work2/style_emoticons/<#EMO_DIR#>/smile.gif
The downloadable version you're talking about (that's NIOS II btw) requires Quartus II version 4 and up. At home I have the parallax EP1S10ES board and I'm able to use the Quartus 4.1 webpack (that's free) and the downloadable NIOS II. Yes it will continue to work while connected (that's so you can't put it into a product without paying for it). The downloadable one has everything except OS support.
If you're school has asked you to buy a UP2 board then I think they want you designing hardware only (ie you don't really need a NIOS or an OS for that matter). If that's the case try parallax out, you'll get a much more powerful chip that's only a couple years old (UP2 is old, they use the Flex 10k70).
If you do get the 10k70 board I think you can use Quartus with it (do yourself a favour and use Quartus)
I hope that gave you some ideas, if not let us know and I'll try again, or someone else can offer some ideas