Hitting a wall with PC2700 at 174MHz is normal, don't belive the hype and FUD, PC2700 aka DDR333 is made to run on a 166MHz FSB.
DDR stands for Dual Data Rate, meaning it can send twice as much data as PC166 standard SDRAM.
On the other hand, Thoroughbreds and Bartons are known to be able to run on a 200MHz FSB but that requires good cooling, PC3200 memory, a good motherboard with a powerfull chipset and a decent power supply to keep stable voltage.
You may want to start by loosening the memory timings (3-3-3-6 2T instead of 2-2-2-5 1T) but I doubt that a stable 200MHz FSB is possible with PC2700.
As you can see, the 2600+ can either be sold as a 133MHz or a 166MHz FSB CPU, I suspect your friend is using one with a 166MHz FSB, otherwise the 133x16 CPU on a 175MHz FSB would have yield a speed over 2.8GHz, no AMD CPU can sustain that speed unless overvolted and cooled by liquid nitrogen. By running the FSB over AMD's specifications, he is OverClocking, a mediocre 100MHz OC that is.