I don't see a problem with him running another 35 if he doesn't go bigger. I wheeled trails like Hell's Revenge and Poison Spider back in the day with 33's on my 35. I then upgraded to a Super 35 and it ran years without issue. It could have been the p.o. who did something stupid in it, then the slightest thing your buddy did, ruined the axle.
In my personal experience, if you don't treat it like a 14 bolt, and recognize its a 35, you can go quite a ways with the stock 35.
At any rate, that being said, 8.8's or C8.25's are going for around $100-$150 (I paid $75 for mine at Pic-A-Part with everything but discs & pads), about the same price as a D35. With about $50 in bracketry it wouldn't be too hard to get one of those under it either.