Yes, pillow friends means exactly what we think it mean:

"Pillow friends are not just good friends. Oh, they are that, too, but they also get hot and sweaty together and muss up the sheets something fierce. By the way, pillow friends is a term used in the White Tower. The same relationship between men or women elsewhere would be called something else, depending on the country."
-The Official Robert Jordan Blog, September 30, 2005

And yes, Moiraine and Siuan were pillow friends when they were novices and accepted:

“Not troublesome, really. High-spirited. None of the tricks Moiraine played were mean, but they were plentiful. Novice and Accepted, she was sent to my study more often than any three other girls. Except for her pillow-friend Siuan. Of course, pillow-friends frequently get into tangles together, but with those two, one was never sent to me without the other. The last time the very night after passing for the shawl.”
- New Spring The Novel, An Arrival

See this article for more than you ever needed or wanted to know about the subject:
http://13depository.blogspot.com/2002/03/everything-you-ever-wanted-to-know.html