That should be OK as long as AVG is activated. I have never used NSW but from what I understand it's got other utilities besides the antivirus so I can understand why your friend wants to keep it.
My friend has NSW 2003 and the virus definition subscription is expiring. I told him we would use AVG which is free. He asked me if he could keep NSW and I said yes but that he could'nt have two AV programs running. If I disable auto protect in Norton, will that do it?