You mentioned that this friend had passed on. The mean tings that you were saying to him was more than likely your anger at his passing. This is a normal reaction. :) That he had his arms around you ... think of angels wings. He was surrounding you with his protective, loving energy from beyond. The half-cocked smile was telling you that he is fine, moving on with his learning. To not worry about him.
I found it interesting the manner inw hich he appeared to you. He was being "mirrored", as opposed to appearing to you in person. Water and literal mirrors are wonderful venues for a happening like this.
He meant to bring you peace over his passing, and to let you know that he is there for you. :)