Hi lcaussie - welcome to another Aussie,

There is no truth whatever to their statement. As long as you are eating enough protein, you will lose fat rather than muscle. Anyone who loses weight will lose a little muscle - that is inevitable - but low carbing means you lose much less muscle than if you are on a low fat diet. Refer your friend to page 65 of the latest edition of Dr Atkins' New Diet Revolution where he discusses the studies done by Professor Kekwick and Dr Pawan.
These studies proved that the more fat you eat, the more fat you lose.

BTW, have you visited our Australia/New Zealand subforum yet? You'll find local info there that may help your low carbing journey. Here is the link: http://forum.lowcarber.org/forumdisplay.php?f=43

HTH

Rosebud