Yes, as a "Duldung" holder, your friend is required to make an effort to get a national passport. It will be very important to record somehow, that he tried his best to get one. Maybe he can prepare a letter, which states, that the embassy is not issuing the documents and ask them accordingly to sign it. Another option could be to take people with him as "witnesses". However, I think that you also should look for legal counselling. If you want to share your area you live in, we are also happy to support you in finding a close counselling office.
Good luck with everything and please let us know, if we can support you somehow.