When reviewing papers and especially proposals, you are supposed to declare conflict of interest if you are unable to be objective. For instance, reviewing the work of past collaborators generally falls under this category -- hence you include PhD and postdoc advisors, any people you may have advised, any coauthors on papers or proposals or co-editors in the last however many years on the lists of people whose materials you should not review.
But then there is a murky area of colleagues and friends who are not collaborators, i.e. there is no paper trail of collaboration (manuscripts, books, proposals coauthored).
Still, I should not review papers or proposals authored by, for instance, the woman who was the maid of honor at my wedding or any close personal friend for that matter. But what about not-so-close friends? Should everyone with whom you ever happened to have coffee or lunch at a conference be excluded? I would say this is taking the conflict of interest too far: it eliminates too a large portion of the reviewer pool -- you actually want competent people in the field to review; conferences serve as places where competent people meet and discuss science, often while consuming foods and beverages. They may end up liking one another.
Just because you like someone and know them a little doesn't mean you cannot be objective in reviewing their work. I think there is more danger in not being objective if you personally dislike someone than if you somewhat know and like them. But, honestly, how often do people recuse themselves from reviewing work of a competitor or someone they really hate rather than trash perfectly good papers or proposals in an attempt to sabotage the party they dislike or are in competition with?
The issue of properly gauging where the line of the conflict of interest lies is critical in panel review of proposals. We all want to have someone on the panel who likes our proposal and champions it, but how often does it happen that a person passionately champions a proposal authored by someone they have never heard of versus the proposal of someone they know and respect? In contrast, how often does the champion know the PI a little too well (e.g. drinking buddies over multiple decades)? At which point does being a good champion border on conflict of interest?
For instance, would you review a proposal or claim conflict of interest if the PI is:
1) Someone whom you knew in grad school way back when you were both students but you now rarely keep in touch?
2) Someone with whom you occasionally exchange emails and mostly talk shop, but you think they are an OK person and a great scientist?
3) Someone you invited to give a talk at your institution (or they invited you to talk at theirs)?
4) Someone you see regularly at conferences and may socialize in that context, but have minimal interaction between conferences?
(feel free to insert your own case...)
Dear readers, how do you decide when to claim conflict of interest and recuse yourself from reviewing because you know the author(s) a bit too much?
What level of professional and personal acquaintance is still OK to comfortably agree to do the review and not feel like you have perhaps been playing favorites?
Has your answer been changing as your career progressed?