The rule is: once a machine gun, always a machine gun. Simply removing the full-auto parts isn't good enough. BATF requires the gun to be destroyed, usually by cutting the receiver into 3 parts. In addition, it is an open-bolt weapon, which is also banned (legal semi-autos were grandfathered IIRC).
Basically, he has a contraband machine gun.
Note that there are a couple of folks in Congress who are trying to get a law passed that will allow a "GI amnesty" so that all the war trophies can be added to the NFA registry. There are a lot of folks in the same position as your friend, and lots of families who found full-auto war trophies in the collections of deceased family members. Hopefully, this law will pass, and the gun could be registered. If the gun is turned into BATF, it will be destroyed.
-Troy