I've become convinced, many times, and especialy by recent events, that mixing your friends with your busniess is a bad, bad, bad, bad idea. It will lead to broken friendships, lost money, and lost jobs.

That said, you've got one basic question: which is more important, the friendship or the business? In any case, what you need to do is give up.

Hm. I suspect recent events are having too much bearing on my mood... I can't clearly express what I'm tring to say here.

Either you're going to, best case, be out a friend, $1k, and the work you expected to get done, or out quite a bit of money. This isn't going to end well.

Also, consider that you've probably pissed off your friend, if he reads perlmonks.