He purchased a device that is a mini display port to HDMI, and when connected to his 40" LCD he got picture and sound, through HDMI.....this allowed him to surf and stream netflix, and it worked fine....
Good, he has a "newer" Macbook w/ mini-DP and should consider himself fortunate that going mini-DP to HDMI to his HDTV is working properly and stop. Knowing that, it makes little sense to me to try to force video first through the component in of an old AVR and then back out to his TV. In home theater, you want to get as pure and unadulterated a video signal as possible to your display.
However, all MacBooks have built-in optical digital audio out in the headphone minijack, that's what he should connect to his AVR--then he can pass digital audio to his AVR for those times he'd like to listen to music and not have to turn the TV on, he can listen to AC-3 and DTS through his AVR when he's watching high def movies on his TV (watching the video over mini-DP but listening to the audio over optical) and for those times he doesn't really care about audio and just wants to watch TV with the audio though the crappy TV speakers, he can. Best of all worlds--the highest quality digital video possible with two options for audio output, optical or mini-DP to HDMI.
...will a ( powered ) component video converter work, converting hdmi to component video/audio...
It's a real crap shoot trying to use these kludgy devices, and when I've read of folks using them most often they're stubbornly trying to go into an older HDTV that is component in only, i.e. the TV doesn't have HDMI or DVI inputs. That's not the case for your friend, and while he might succeed getting component in to his legacy AVR with a device like this, he might not like what he gets "out" of it, i.e. he might find that his Mac now no longer properly detects his LCD, and if it does, it may not retain EDID sync to his display after he switches away to some other input on his AVR. Won't know until you try. In effect, though, I think the best advice you can give him is to tell him no, he can't go component in to his AVR without a lot of difficulty and expense.