Someone "Closed" My Open Source Software

Dear Rich: A friend of mine has made a free, open-source software project, and made it available on internet (app and source code) for everyone to use, download and modify, but he didn't include any TOS or license on it. The first problem is that some guy contacted him and offered a piece of code to collaborate with the project, my friend accepted, and the guy fully knew the free open-source nature of the project. Everything went ok for several months, my friend's project became popular but when my friend decided to update the source code for download (with this guy's additions) the guy demanded him to take off his part of the code, because it was his and he didn't wanted to be available as open source (!!). Can he legally do that? he willingly offered the code to a free, well known, open-source project, there was no contract or anything, but he offered it nonetheless, to a free open-source project. How can he "change of mind" later demanding rights over his GIVEN code? The second problem is: this same guy took my friend's software (as it is open-source and free), made his own derivative version with his own code, and never published any source making it basically closed-source. Isn't this somewhat illegal? Sorry, we didn't include your third question -- a hypothetical involving two developers named John and Stuart. We avoid hypotheticals.
The next level? And speaking of the real world, assuming your friend had a strong legal position (which we're not sure he has), is he willing to take things to the next level -- that is, is he willing to pursue his legal claim by hiring a lawyer or filing a lawsuit? Such actions would only be worthwhile if there were substantial profits generated from the "stolen" code. (If you can determine the profitability of the second project that could help determine your course of action.) Otherwise, the pursuit would be a Pyrrhic victory.
Who owns what? The failure to include a license agreement or a TOS (terms of service) doesn't preclude your friend from claiming copyright on his original code. In fact, the failure to include an open source license works against the belief that the software actually is open source because open source by its nature requires a license (and in many cases an assignment of copyright). However, posting a notice that others are authorized to freely copy and modify the code would likely shield any persons who took or modified the code.
The contribution. As for the code "contribution," assuming that the other guy owned rights in the contribution, he would have either created an implied license (for use in your friend's code) or he would have created a joint work and become a co-author (unlikely but possible --  somebody would have to evaluate the code and the contribution). Under an implied license, the other guy could possibly ask to have his work removed from subsequent versions because his implied license was only intended for a specific version. If it's a joint work, removing the code would not be an option. As for making it closed software, if your friend retained copyright and it's not a joint work, he could claim infringement (see "The next level," above). If it is a joint work, your friend could claim some percentage (presumably half) of the revenues earned by the other guy (but again, that involves taking it to the next level).