Simple answer: Be honest. Say what you mean. You're not hurting anyone by telling them the truth. You're actually helping a person improve. Each time you do it, you strengthen the trust between you, which is what really binds people together.
Why do I say this?
You know I guess I have always been lucky with friends because we have always been open to say things without fear of hurt feelings. In fact, we are brutally honest with each other and will often "rib" on each other all the time.
Oddly enough, me an my wife have the same relationship. We will insult, ridicule, and threaten each other but not in a mean or disparaging way. It's always humorous. We exploit the stereotypes of husbands and wives to our advantage. I believe it allows us to blow off steam and prevent bottling things up.
We get the message, but at the same time we are so accustomed to the delivery method that it doesn't bother us. In fact, I view it as the most honest love. Am I sadistic? lol I don't know, but after 26+ years we're stronger than ever. We were not when we were beating around the bush and holding back.
Of all the relationships I have observed, those that are based on humor, and allow open dialog and criticism have been the most successful.
Everyone's relationship with their friends and loved ones is handled differently. I'm not sure if you have a relationship with your friend that is based on humor and openness. If not, I'd recommend establishing one like that. It's just my two cents based on my experience and observations.
Simple answer: Be honest. Say what you mean. You're not hurting anyone by telling them the truth. You're actually helping a person improve. Each time you do it, you strengthen the trust between you, which is what really binds people together.