That's harsh
I am so very sorry for your friend
I guess the sponsor can withdraw the application, since he would be the one taking responsibility for the PA for 3 years after landing... which as he is considering to withdraw the application I don't think he would be willing to do. If he withdraws the application, I don't think it would jeopardize a future application for student visa or EE, since it was not due to a problem with the PA.
If the sponsor pushes through with the application and the wife gets her PR, I don't think there is a conditional PR for the PA anymore; however I am not sure about it and would need to read a little bit of CIC website to clarify it.
I am not an expert on nothing related to the process, so all I said is just a guess. I would get in touch with another group (as the one red.kaede had mentioned) or even immigration lawyers.
Once again, I am sorry for your friend; that's really disheartening