It will absolutely function 100% with your D40. Actually, almost any lens Nikon ever made will work with your D40 if you are willing to twist the focus mechanism yourself. That's the only compatibility problem with non-AFS lenses.

If you don't trust yourself to focus, you can still use the camera's electronic rangefinder to confirm focus with a blink and a beep.

From the D40 manual:

"If the lens has a maximum aperture of f/5.6 of faster, the viewfinder focus indicator can be used to confirm whether the portion of the subject in the selected focus area is in focus. After positioning the subject in the active focus area, press the shutter release button halfway and rotate the lens focusing ring until the in-focus indicator is displayed."

With that in mind, get any Nikon 400 mm lens that tickles your fancy. It's just a matter of how much you want to spend. Nikon does not make a bad lens that includes the 400 mm focal length. The "entry level" is the $1,400 80-400 mm VR lens. Next up is the "holy cr^p" $5,000 200-400 mm VR lens. Top of the line is the basis of a new religion - the 400 mm f/2.8 prime lens. It sells for $8,500.

With that kind of investment, you would do well to get the 70-300 that you mention and tease yourself with long tele shots. I have the lens myself and find that it is quite nice for most anything. It's not as sharp as a prime lens, but take a look:

http://www.flickr.com/photos/samfeinstein/tags/70300/