"Game accounts are non-transferable under ANY circumstances."
Seems pretty straight-forward. I doubt that it's punishable to let your friend see and play the game on your character for example if he is over at your house. But giving him access to it from his own house is probably against the terms of use.
I think it is to 'fix' group questing, i don't know but if all players in the party have the quest you *should* be able to pick up the quest items otherwise no such luck.
It's probably because in a party, the quest item drop calculates for each player so there is overall a higher chance for each mob to drop the quest item.