Silly thing to do.
1) No, I'd have watched it and called the police, and made note of where they parked it, presumably their house.
2) He's welcome to take it back. But by doing so he's essentially scuppered any chance of proscuting the thieves. Any lawyer would tear the prosecution to shreds over this, even if it was accepted to court and I doubt the CPS would touch it with a bargepole. The police know this and have basically told you as much... no possibility of a convinction now. If your mate had called the cops they could have caught the chavs driving off with the car without keys... *bam* car theft. As it stands it's now your mate's word vs their's with not a shred of evidence to back your mate up. Even if there are fingerprints it wouldn't be enough.
3) No, not a thing.
I suppose there was a risk of permanently losing the car if your mate's had called the cops. So perhaps they made the right choice. But it was a choice between prosecuting them and risking the car, or getting the car but losing any chance of a conviction. Actually even if they had been caught they'd have got a caution... in retrospect it probably was the right choice, heh.