Hi Buffy,
In my opinion,
Yes, let your friend know that you are there for him.
Don't pretend that nothing is wrong. Tell him that you know he is going through a hard time, and that you will be there for him when he wants to talk or for anything else.
Tell the children. Maybe not everything at first, but yes, they will know that something is wrong and it is better to know the truth. The ALS society has two books, one for small children and one for teens, telling all about ALS. We had to tell my two grandchildren (a teen and a pre-teen) about my ALS, but it was better after we told them.
Hope this helps. Again, every case is different, so you have to use your own judgment, but you sound like a great and caring friend to have!