Pull the intake tube off the turbo, the shaft should spin freely. There will be play up and down because the shaft normally "floats" in oil, but there should not be any play,none, front to back. If there is front to back play your thrust bearings are worn or gone, however this would not nessesarily cause you to lose power. I agree with an earlier post, check your boost hoses to make sure they are intact. It actually sounds like its in "limp mode".
What year is your friends truck? I have a stock turbo off my "03" with 10k on it, it is tight, will let it go very reasonable, send me a email if interested.