He is definitely showing signs that he is attracted to this guy (considering the sleepovers and his 'friend's' attraction to him). If I were you, I would consider the situation as if this friend were a girl. Would you let your boyfriend stay the night with another girl at her house? Would you let him go to parties with a girl? Would you have sex with your bf in front of this girl after she told you she is attracted to him? Boy or girl, doesn't matter. The fact is, everyone has attractions and if you suspect that he is attracted to this guy, be cautious and don't let him get away with fooling around.
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