You can send it as an email application, for example. The installation process is the same as if you received the application from a source other than Market, and is documented in many places. This is the first hit I got on Google.
The file .APKcan be found in the bin directory of the Eclipse project. In addition, keep in mind that if you do not sign your application with a valid certificate, your friend will have to explicitly enable "install third-party applications"; otherwise SO will not let you install it.
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