Writing letter of recommendation for someone I have never met
You shouldn't write a letter of recommendation for someone you have spoken to once, and you certainly shouldn't write a letter of recommendation for a friend of some you have spoken to once.
You should never lie in a letter of recommendation, but it is generally also bad form to write negative things in a letter of recommendation. If you can't in good faith write good things about a candidate, you should refuse to send the letter.
EDIT:
I'll add an answer to your first (not main) question from the comments:
It is very unusual for a first year grad student to be asked to write a letter of recommendation, particularly since he is asking you to say he is your best student, when presumably you have no students. If I were the admissions tutor here, I'd probably disregard such a letter. Unless it was obviously dodgy (claiming things which were clearly untrue), in which case, it would count (heavily) against the candidate.