Friends hi-fi system not very good, what do you do or say?

it's a great conversation starter if they ask what you think. Tell them about your journey, how much fun it is, how they can improve their system. You can be constructive without hurting their feelings. 

I always start with the extremes and put things in perspective. It's very possible that they are not hearing what we do. Their system may perform well for their criteria. Incremental changes are not one way but the best way to learn and appreciate this passion

Are you consciously going to change your friends life? If you start them down the path of your sickness will you someday be sorry? Think of the money you have spent. Then ask yourself can your "friend" bear the same burden. Oh woe is me. I am so glad I don't have any friends left for me to drag down this musical nightmare. That's the long version. Short version is "Yup, sounds good."

If we're only talking about audiophile friends, I've had long discussions with friends about every single aspect of audio, everything out in open and we don't have to agree on everything.

If there are constructive suggestions you could make about placement, set-up, I would not be afraid to offer those, but would not condescend. Do you really have a Lambo? I did, the last of the Diablos, a 6.0 built under Audi ownership circa 2001- gorgeous car but hardly under the radar- I had kids running on my blind side (most of the car is blind sided except looking forward) to take photos. That car attracted a lot of attention. Rosso Vik (candy apple red), snow corn white interior with red piping, carbon fibre dash. Tres exotic for the money when I had it. Long gone. 

Here's something that may be hard to consider: Chances are fair enough that each of us has had either a same component, or one that was similar in brand/quality to one the host has. "Oh, I had a similar one of those xxx, back in college. It was great ...". If the host has any interest in that fact, s/he may respond with something like, "Do you still have your xxx?".  Then you have options:

(1) Yes, I'll never part with it. Memories of those great times.

(2) I found that the yyy is very similar (perhaps a white/grey lie), but seems to have better bass in my current listening room. 

(3) My kid uses it in his bedroom system, and it sounds pretty good in there.

If you absolutely never owned anything marked, "Wards", "Tandy", or thereabouts, you still may have common pressings or musical preferences -- I mean, it is about the music, right?

It's a journey. It's a hobby. Not a contest.