Whilst I do agree that it can be very frustrating watching people claiming WTC who clearly have no intention of working more hours, or earning more actual income, the danger is that people who are S/E and claim WTC will all start to be seen in this way.
Very few businesses make enough profit to live on at the beginning, and I know loads of people who now have very successful businesses that just wouldn't have been possible if they couldn't run at a loss/not much profit for the first few months whilst claiming the WTC help (especially the childcare component). If this is withdrawn, or people have to start showing that they are also spending 40 hours a week looking for more work, it isn't encouraging people to go for it and set up their own small businesses, is it?
IMO HMRC have always been wise to this scam anyway, and I know a couple of people who have been audited thoroughly after a couple of years to check whether they have actually been un 'remunerative employment' for the purposes of claiming WTC.
My friend's business made very little profit (though quite a bit of turnover) for about three years. However, he now employs 24 people, pays a lot of taxes and has ensured several families have left the official numbers of unemployed in this area. He pays himself more than enough now that he does not need to claim WTC.
As far as remaining friends with people, that depends on how much you enjoy their company and how much you can overlook the things about them that annoy you, I guess. I have friends that are polar opposites of me in many regards, but we don't discuss those bits and the good bits are worth their friendship. In this same scenario, I would feel very similarly to you, though.