I once in a while get asked by friends and strangers alike to read their scripts and short stories. As a writer, I'm of course used to picking up mistakes no matter how major or minor, and inconsistencies. But that inlays the problem, do you as a writer be brutally honest with your friend(s) and these strangers? My simple anwser is yes, you should never sugar coat another persons work if they are asking for criticism. You should be tackful by delivering such news, I'll give you an example: "hey Jeff, I know you have the serial killer hiding the closet and he changed clothes in there. But you have it pouring out, in fact your victims car gets stuck at one point, don't you think the killer would've been dragging mud all through the house?" See, nice and not offensive plus you give them an idea to use what you suggested.
If you get asked by people and agree to read their work, you don't want to be labeled a prick, so take the high road. Give them the dead honest truth, but always explain it in detail why it doesn't fit/make sense, remember this work is their baby and they're very protective of it as we are of our own work.
If they ask you to correct it or edit, at that point you should have a written contact drawn up so it clearly states you worked on that project. Of course there are numerous times where you'll do stuff for free because it's a close friend, ect. In closing if a fellow writer comes to you asking for help and you have the time, please by all means help them. But never lead a writer astray by leaving them in limbo by never looking at their work, that's bad for business.
