That's the problem for sure. It kinda depends on how well the kid will be taken care of. Obviously if the mom is a long term friend I think she's a decent enough person but how well is she able to take care of the kid? Nothing against single moms, there are many doing an awesome job, but it is more difficult for her and the kid.
I'd feel like I'd have to do more than simply write the kid off, but wouldn't want to judge mom on her parenting. Plus, with 5 of my own, I'm not having more.
Also, worst case, something happens to mom. Am I in her will to take custody? I'd want to be, I think...
I'd be willing to donate sperm but not to someone I see and would know that's my kid.
I'd suggest she adopt. We're going through the process now so I don't think it would be that weird a suggestion. Actually, with us adopting it would be weird of her to ask. (Not your situation, but you asked what we'd do)