I have just tested it in the newest version and yes, it is still present in v1.17.40
They implemented a new setting called 'Only allow trusted skins' and it is turned on by default. To turn that off, go to settings > profile and turn off only allow trusted skins. You should be able to see your friend's skins again.
I have just tested it in the newest version and yes, it is still present in v1.17.40
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