My dd has night terrors, from quite young like this lo, and yes they are horrible, so completely sympathise.
sleep... well....
if he is a bright child, explanation and reasoning are worth a go- he can understand by now that just because a parent is not in bed with him, it does not mean he has been abandoned, and that they are close by, and he is safe.
Could a 'prop' be used- a special (new, probably!) cuddly he chooses to be his focus/protector when he goes to bed? So when he wakes up that is there, and he is comforted by that a little? Perhaps (don;t know about light issues though) a soft light could be left on so that mum can be in the same room (reading, doing admin, listening to ipod, whatever) so that when he wakes- she isn't in bed with him, but he can understand she is close by. This could be like a form of gradual retreat so that initially she is in same room, then just outside it, then next room, down stairs etc etc. Emphasis on 'what a big boy' he is by having his own bed shouldn't be underestimated either. Children all want to grow up quickly, because they want to emulate their parents.
Stopping feeding to sleep... change the routine- he needs to brush his teeth after his milk for a start. Maybe after his milk- teeth, story, then soft music- something like classic fm's music for babies (which we used with my dd for months) very low lighting, maybe him lying in bed being stroked or patted softly to help him relax and feel close to parents. Then- say goodnight, and give him a chance to settle himself. He will cry. It will be hard. Leave it a minute, go back to him, reassure him, show him love, then leave again. They will have to do this many, many, many times, but he will get it. Some children need to cry themselves to sleep- its called a mantra cry. My dd did it until 2.5 and it was wearing, but that was her method for switching off. (along with pitch black room, face down buried in pillow, music on etc)
She needs to tackle one thing at a time, but children adapt to changes v quickly, especially bright children.
My dd had terrible sleep problems, and it really is a killer. It got to the point where I said it was going to kill one of us, and I wasn't joking by then (there were other medical problems involved- she could only stay asleep for 5 mins at a time, and it too 50 mins to get her off to sleep!) It is a huge strain on a relationship- overwhelming I know. Plus there is the fact that your friend must get absolutely no time for herself poor woman- which is soul destroying I find personally.
All children want is their loved ones close to them- and he is a smart cookie- he has them right where he wants them fulltime. He is old enough and clever enough for her to explain to him that mummy (and daddy) need time to themselves too in order for them to be happy and to give him their best- children can empathise very well- they may be surprised how well he repsonds to this.
I would also advocate them taking turns- her one night, DH the next. That will give them both a break, even if its not together initially. The one that isn't on duty should try to be out of earshot if possible so they feel like they really are getting a break from it.
Once he can settle at night, get him to settle in the day too- he needs a nap after lunch ideally, an hour at least.
All very easy to say, I know and it sounds so straightforward and simple, as if 'oh wow- we never thought of those things'- I'm sorry, I'm sure she's already tried so many things. All I can do is post what worked for us- dd now sleeps 13 hours per night (3.2, no nap during day) She still moans/fusses about bedtime, but once she is settled, lying down ready for sleep, drifts off within 5 minutes, calmly, no noise. Night terrors are pretty rare now too. The absolute worst thing for her though is to be overtired- she cannot function at all- clumsy, falls over, cries at anything etc.
HTH in some small way- I really feel for her family.