So... originally you said "Yes, I did place my friends upper on my lower and ran into alignment issue." now you say his upper fits on your lower.
The only change that occurred between your two test fits of your friend's lower was the pocket milling on the sides, right?
And you haven't milled (lowered) the bottom of the rear pocket, right?
And the pin is hitting the left side hole slightly high, right?
Seems to me that you have a) a lower with a shallow rear pocket, or b) an upper with a slightly long rear lug.
For problem "a" (most probable), mill the rear pocket deeper. To verify, measure the depth of the rear pocket on your friend's lower and compare. Use a precision micrometer (available at many places including Harbor Freight for about $10).
For problem "b" (less probable) compare the rear lug length against same on your friend's upper. If yours is longer, remove a thin layer from the bottom of the lug with a file or Dremel tool. With condition "b", your upper could still fit your friends lower if its rear pocket is deeper.
All the dimensions and specs for uppers and lowers are readily available online so everything you check with the micrometer should match.
On the question of side holes not aligning, if the drill bit used in the milling process isn't plumb or square with the lower blank, one or both holes can be located out of spec. It's rare, but can happen.
Lastly, inspect the edges of each hole the rear pin passes through for rough corner edges and smooth them out with a small jewelers file (also available at HF, HD, Lowes, Sears, etc)