It looks like the collet nut has been loosened completely, and since it's a narrow bit, has been slipped completely off.
I'd follow keshlam's advice from his comment and tap sideways gently (this isn't the time to prove the Hulk is a weenie!) using a block of wood to protect the bit. You may have to tap in several directions to get it loosened.
Once you've got the old one out, ensure that there isn't a lot of sawdust jammed into the collet. Looking closely at your picture, I can see some faint tan lines through the collet where it is probably clogged with sawdust. If the bit's been left in there for quite a while, humidity will have settled into the sawdust and hardened it quite nicely. Clean out the collet as thoroughly as you can, using dental floss and a small pick if necessary to get the dust out. That should help prevent the new bit from getting stuck. I'd also recommend not keeping a bit in the collet to prevent it from happening again in the future.
It's also possible, depending on how long the bit's been in there, and what conditions the router has been stored in, that there's a bit of rust binding the two together. If the tapping route doesn't fix it (though that should break the rust free, as well), a very light shot of penetrating oil (like WD-40) should help. If there's rust on the old bit when it comes out, that's likely your culprit. A few very light touches with some emery cloth wrapped around a dowel (of smaller diameter than then bit's shaft) should get rid of the rust. CAUTION: It's possible that you might make the collet too large by doing this, so you may want to leave that part for your friend to do when you return the router, so it's his problem to deal with if he sands too much. (Remember: I did say very light touches!)