@roger,
We are comparing the efficiency of a bicycle to walking.
Walking is a very inefficient movement. In every step you push down on the ground. In every step your center of gravity is raised and then lowered. To do this, your muscles expend energy, which is lost to heat, for every step whether you are walking up or down hill. There is no coasting when you are walking the energy you expend walking up hill is wasted.
If you have ridden a bicycle, you have already experienced this. I can ride my bicycle 20 miles without being exhausted.
A bicycle does not have any advantage over a pedestrian when it comes to air friction other than the fact that a bicycle can go faster (but doesn't need to). A bicycle may have an advantage since the cyclist can bend over to be more aerodynamic. You are correct that air friction is generally proportional to v^2. Assuming you bike slowly, this isn't a big deal, and even if you go quickly, the inefficiencies of the walking motion are far more significant.
Rolling resistance is non-linear in practice. If I remember correctly, as you go faster on a pneumatic wheel the energy needed to deform the wheel decreases. It is kind of interesting... but compared to walking I don't think this is significant. And there is friction in walking too.
Of course there is the added expenditure of getting out or locking up you bicycle. On short trips, this might be significant.