Neither of you are necessarily right, but you both have some understanding which is accurate.
Let me reiterate what you have stated, for clarity's sake. The scenario starts with the aircraft flying straight and level. Then the airspeed is reduced by 30 mph through a power reduction while the attitude is held constant. Regardless of what else happens we all recognize that this will result in some type of descent.
You are right in that the airplane has lost "lift" from the lost thrust and will thus descend. Depending on the aircraft and the starting airspeed, you might be right that the aircraft might respond with an uncommanded attitude pitch down. If that were the case, it would be due to the scenario resulting in an aerodynamic stall. However, even if the aircraft were to stall it would not drop like a stone (that is, with no lift to oppose gravity), but would descend at what would still be a substantial rate of descent while still producing some lift to oppose gravity. Moreover, considering the possible entry speeds and attitudes, a stall would be unlikely in this scenario.
Your friend is right in that, with sufficient airspeed and no aerodynamic stall—both of which depend on the airspeed at which the maneuver was started—this scenario will result in a descent. It would be accurate to call this a powered descent. Depending on what he means by it, your friend may not be quite right to think that any "new" lift would be produced by the sinking motion itself, but this might be a difference of semantics. Let's explore this further.
Let's consider a Cessna 172 cruising straight and level at 110 mph. We then reduce the power to maintain 80 mph and hold the pitch attitude exactly where we started. In this scenario we have transitioned from cruise speed to something closer to the aircraft's best rate of climb speed. This means that we have transitioned from a high speed, high drag region of flight to a lower speed, lower drag region of flight. At the same time, by holding the aircraft's pitch attitude constant, we have changed from a low angle of attack, low coefficient of lift region of flight to a high angle of attack, high coefficient of lift region of flight. This increase in angle of attack is due to the new angle of the relative wind introduced by the aircraft's descent. The overall amount of lift doesn't change, but the way the lift is created does change. As the speed is reduced the wing's ability to create lift (expressed by the coefficient of lift) increases with the increase in angle of attack. Thus the lift doesn't change, but the lift is now due more to the angle of attack than the airspeed. If this is what your friend means by "new" lift introduced by the sinking motion, then he is right.
However, this "new" lift must be understood to be due to the angle of attack change, not an increase in net speed (kinetic energy). The lift isn't actually changing, merely the way in which it is created—angle of attack as opposed to speed. However, if the scenario were different and we allowed the aircraft to pitch down as we reduced power, the aircraft would pitch down to maintain about 110 mph, and the wing's coefficient of lift would change very little as the airspeed and angle of attack remained relatively constant.