I know two people like that. It's different because they think I'm straight. One is a really gorgeous guy who has a girlfriend. I have a crush on him I admit, but having been burned once by falling in love with a straight guy (admittedly his sexuality in high school was unknown since like me, he never had a girlfriend), I'll never take it farther than that.
That guy actually flirted with me twice. I think it was flirting. Once he rubbed my calves up to my thighs, hitching up my shorts (we were drinking and sitting beside each other) and said 'You're getting sexier, Rick.'
Another time was when he was copying some mp3's from my PC and he put his legs next to mine and started thumping it. We were wearing shorts and our calves were rubbing against each other. LOL. I was breathing weird then and he was strangely quiet. Then my dad came by and he moved away so fast, like he was caught guilty at something. We never talk about it though. LOL. He's like a big brother to me.
Another is a schoolmate of mine. He's something of a rebel. Always getting into trouble, first to get drunk, smokes pot, etc. I on the other hand have a halo. *innocent smile* With other guys he's always brusque and even downright insulting. But with me he's like... I dunno. Polite and always complimenting and stuff. Weird... Because i know how he is with others, but with me it's like he's donning on kidgloves and going out of his way to treat me like I'm special. LOL. Sounds exactly like your friend.
I still believe they are both straight. Just bi-curious maybe or a bit too affectionate.
But then again, I don't know if they suspect I'm gay. Just last thursday I was out at a party with the first guy mentioned above and some other friends. They basically said that they don't believe I'm still a virgin (I'm pretty upfront about that, LOL), and that they think the reason why I still don't have a girlfriend is because I'm pining for one of the girls I was associated with in high school. Even if I denied that again and again, they still won't believe me. Blah!
(I really need to tell my bestfriend soon! LOL)
Anyway, my advice is probably just leave it be. I take it he's not a really close friend? If you're not out yet, I don't think he's a good person to begin with heh. If you plan to take the friendship further (I mean deeper friendship not dating, hehe), I think you should tell him though.
But meh. I'm not exactly the right person to give advice in these situations. Hehe. Hope my experiences help though.