In third edition models outside of the kill zone could be targeted by shooting and even shoot themselves I seem to recall.
In fourth edition the term kill zone has been removed and is replaced by the term "engaged" moreover the entire unit with atleast one engaged model is considered "locked", thus if even one model in a unit is in
BtB with an oponent then the whole unit is considered locked but only models within 2" of that model are considered engaged (in the kill zone).
Looking at the shooting phase rules for choosing a target I cant seem to find any rules for what targets may not be chosen as targets, the section of target priority however states that you may automatically ignore units you may not shoot at as for example units with all models engaged in
CC.
Aparently your friend was not using this passage.
After that
LOS rules start and as far as I can see being allowed to target locked/engaged models are not covered there, just that locked models are considered to block
LOS.
Thus, I jump to
CC rules.
And finally I found the rule. page 44, Shooting into & out of
CC, really should have simply gone to page 44 as listed in your post at once
You may not directly target any model locked in
CC, the only way to cause "shooting" casualties in a unit locked in
CC is to shoot a template weapon at a target close by and have that template weapon scatter into the locked/engaged models.
It seems like your friend has missunderstood the terminology of engaged/locked and mixed in flashbacks from 3rd edition.
The term killzone is not used in the 4th edition rules and just like you belive once a single model becomes engaged (a feet that is only possible in 1 model units but...) then the whole unit becomes locked and can not be directly targeted for shooting.
Remember here that while only a small portion of a unit may be engaged all models in the unit are locked even those that are also engaged.