What to do when a referee wants to criticize someone else through me
In my opinion, having a proof that a method is incorrect and keeping it to yourself due to diplomatic/social concerns is neither the scientific nor the friendly thing to do. 

If I was working in a group which uses a method frequently I'd expect a friend knowing that it was flawed to share his/her concerns with me in a constructive and friendly manner, knowing that the next researcher who discovers such flaws might not be friendly about it. I'd also hate to be putting time and effort based on something flawed.

Once that was done by that friend, we could find out between us whether the method is really flawed. If it is, I won't be offended if it's published in a paper he wrote.