What is the Sharia ruling regarding money, the origin of which is unlawful, and its owner has disposed of part of the unlawful portion, and it has mingled with lawful money? Does all the money become permissible and can it be used for zakat, sadaqat (charity), and Hajj, or does it still retain its prohibition?

Your friend erred by borrowing unlawful money from his brother, and he must repent. As for the profits generated from it, there is a difference of opinion among scholars. The more correct view is that he must dispose of only the unlawful principal, not the profit, by spending it on the welfare of Muslims, because profit is consequent upon work and effort.