SrK., you do have a tough call, with the sandbagger being a close friend. If he were just an acquaintance, it would be easier just not to invite him back again for the following season (and hope he didn't come back). But in your case, there are some difficult twists in it.
I recall from personal experience that back about 10 years ago, I started worrying about my average getting higher than what I could maintain for tournaments. I never sandbagged, but the worry was always there in the back of the mind. Well, what I found out was that as long as I was worrying, I was actually having difficulty making the clutch shots needed to win points when it really counted. So, I adopted the "bowl flat out" mentality, where I now go for maximum score on every single shot, regardless of whether it raises my average or not. If I can't handle my average in tournaments, then so be it. Since I went to the "bowl flat out" mentality, my clutch shot making has definitely improved.
I do know of a couple of "known" sandbaggers in my area, and most bowlers don't even want to bowl with them. One of them is very good at faking his game....he carries about a 170 average during leagues, but when there is some serious money on the line in a tournament, he'll bang a 700 series with no problem. He plays the part pretty well....he masks his errant shots well enough that most bowlers wouldn't realize what is happening. But like I mentioned, those bowlers "in the know" don't want to bowl with these known sandbaggers. In fact, a friend of mine was bowling in a doubles tournament event with this one sandbagger fellow (the 170 averager), and when the sandbagger saw that they weren't going to be able to cash, he dumped the rest of the set.....my friend was very much aware of this "throw-off", and said that he would never bowl with him again. The reason for the "throw-off" in this situation was to keep from being rerated in the particular tournament.
I guess that I bowled in scratch leagues for too many years, because I really don't even think in handicap terms any more. I just think in scratch terms, and let the handicap points fall where they will.