Thank you for getting back to me.
Yes, I think that your friend has a mental disorder. If he uses these lies for profit then he has a personality disorder (one of the four I mentioned). If it is narcissistic personality disorder then you can tell by looking at these psychiatric criteria:
Diagnostic criteria for 301.81 Narcissistic Personality Disorder
(DSM IV - TR)
A pervasive pattern of grandiosity (in fantasy or behavior), need for admiration, and lack of empathy, beginning by early adulthood and present in a variety of contexts, as indicated by five (or more) of the following:
(1) has a grandiose sense of self-importance (e.g., exaggerates achievements and talents, expects to be recognized as superior without commensurate achievements)
(2) is preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love
(3) believes that he or she is "special" and unique and can only be understood by, or should associate with, other special or high-status people (or institutions)
(4) requires excessive admiration
(5) has a sense of entitlement, i.e., unreasonable expectations of especially favorable treatment or automatic compliance with his or her expectations
(6) is interpersonally exploitative, i.e., takes advantage of others to achieve his or her own ends
(7) lacks empathy: is unwilling to recognize or identify with the feelings and needs of others
(8) is often envious of others or believes that others are envious of him or her
(9) shows arrogant, haughty behaviors or attitudes
Pathological lying is considered to be a mental issue because it does harm to the person who does it and to others. It can also be believed by the person who tells the lie and therefore their sense of reality is in question.
Some people are born with the potential for having personality disorders because those tendencies can be inherited and can be learned from a parent as well. You friend would be a good candidate for psychotherapy, but may not wish to go attend. Many with personality disorders will not go to therapy and do not think they need it.
You can but try and talk with him.
Here is an interesting book you might want to read:
I wish you great success in helping this man to come to terms with reality and changing his life for the better.