Can the police confiscate the phone of someone they arrested and use it to call people in the contacts?

Yes, they can. They can search the person and their belongings (except car) incident to the arrest. If they feel that something in the phone can be used as evidence (including statements from someone who's number is in the phone) they can search it and use what they find.

yes its legal, especially if its a larger case for drug trafficking etc

Yes, of course they can! Part of me wants to say, "or else they wouldn't have", but I guess we see police doing wrong things fairly regularly. But yes, it's considered evidence. In particular, if the person in question was arrested for a crime that would involve others (such as dealing drugs), they can and should look for other criminals while inspecting the evidence. If it's in question for you, head down to your closest Sheriff's office, and let them know you're there in response to their call. If they didn't call, they'll tell you so. If they did, then you'll look like a responsible, honest citizen.

I believe they need a court order signed by a judge for this. But be very careful what you say to them, never offer information.

Yes they can but you can refuse to talk with them unless you have a lawyer present. It's not required that you wait at the house for them. if they want you they can track you down.

yes they can, comply or you will be in trouble for invading police.