Aziz DB would say that means protectors and not friends but Hassan can you comment on that? Is it indeed friends or is it protectors?
Wali/Awliya doesn't mean friend in the sense the English word 'friend' (buddy, mate the guys you hang out with, roll with etc...) - that would probably be closer to sahib/ashab (companions) or Sadiq/asdiqaa' (erm... friends).
But having said that Awliya doesn't simply mean 'protectors' in the sense guardian or advocate or an agency of somesort - it means a much more than that.
In it's context it meant the sort of protection the tribe offered to individuals. In 7th century Arabia there was no sense of individual freedom or liberty as we have now - one existed as part of a tribe - the Aws or Khazraj etc... Islam replaced tribal allegiance/loyalty with allegiance/loyalty to Islam.
So regardless of how you translate Wali/Awliya - there is no doubt it is saying: "stick with Muslims - not non-Muslims"