You are correct that a batsman may stand however they please in front of the wicket. This is normally subject to Law 41.14 and 41.15, but a backyard game does not typically have a pressed pitch to play on, and this law is somewhat irrelevant.
Your friend is incorrect that the wide range increases. The only determination of a wide is that the batsman cannot play it - this is going to be the case regardless of where a batsman stands.
However, the Preamble to the Laws makes several very important points, some of them being
Play hard and play fair.
Create a positive atmosphere by your own conduct, and encourage others to do likewise.
Standing in a way that prevents the bowler from sighting the stumps is about as unfair and negative as a batsman can be, short of actively interfering with the bowler (itself covered by other laws). This is covered by Law 41 in general.
As it is also unlikely that you have dedicated umpires, they cannot intervene as the law requires. This will have to be an issue you decide together but for the sake of the spirit of the game, you are best advised to concede the point and guard conventionally.