Based on your brief description, I'm going to guess that you would be considered an independent contractor, for tax purposes. If this isn't the case, my response might not be applicable.
What you've been told has some truth to it, although with some qualifications. For example, merchandise you purchase from them for resale to your own customers will indeed be deductible by you, but only when you sell the merchandise. If you bought a bunch of items today, e.g., then sold them to your customers in January, you'd get the deduction on your 2011 tax return, not this year's return.
Also, food and entertainment expenses (when incurred for business) are generally only 50% deductible.
If you're going to be in business for yourself, do not rely on your upstream sponsor for unbiased tax advice. That's not their area of expertise.
And Happy New Year to you as well!