Hello,
What I am going to suggest my sound a little long winded and equally disastrous but it is a well known problem with the dreaded 2.5 turbo diesel engine. Basically (this is the background bit) Land Rover acknowledged that the 2.5 N/A was a very reliable and capable engine, so they decided to "take it up a notch" and stick a turbo onto the head. They also made a few slight changes to the injection pump and some other parts of the oil return system and there you have it, the 19J. Adding the turbo and the beefed up injection pump meant that the engine typically over heated and suffered from a range of different problems, all of which point to the symptoms of your friends loss of power. If he was to take the head off the engine he might expect to find cracked pistons, melted rings, a split cylinder block (non repairable) or even a cracked head. Once the engine has warmed up, the aluminium pistons will expand ever so slightly, but perhaps just enough to open a crack enough to allow compression to escape. The same goes for the engine block if it has a crack in it somewhere.
I had the same problem with my 2.5 n/a not long ago. I drove it with the fan belt snapped, the bugger over heated and all four of my pistons cracked. It's a little bit rarer in my engine but it still happened, and I am fairly certain that you're looking at cracked pistons.
For the price it will cost (in parts to do it yourself alone) you could buy a 200 or 300 tdi and drop it in, or just pick up another TD or 12J off ebay and hope that it is in better condition!
The only way to tell is to take the head off (an hours job) and have a look
-pos