I'm looking for a book that a friend loaned me in Junior High. It was about a group of friends trying to take down an evil wizard. The most I can remember is that at the end of the book they have a showdown with the wizard on top of his tower, they lose and decide to split up. One of the characters dreams of being a wizard but is of a race that can't do magic, at the end of the book he discovers he is able to do a kind of rainbow magic that he doesn't understand. Any help would be appreciated, been looking for years!
Additional info: It was sword/sorcery and at least the main character was human. The group was mixed in gender. The rainbow magic character came from a race that was very short and the rainbow magic came out of his fingers. There were other forms of magic but unfortunately I can't remember them, it's been a long time. Thanks again