iPhone 3GS won't send/receive MMS while on phone call......

A friend of mine has a 3GS and is unable to send/receive picture texts while on a phone call. We compared his settings to my 4, but they're all the same. Any ideas as to what the problem could be. The only thing I could think of was that he hasn't updated his software, it's still 4.2.1

If he has Verizon, they cannot use Data while on a call. Is that the carrier?

One other thing to check if you haven't (you said you did though) go to the Settings/Messages/MMS Messaging switched to ON. Thats the only setting that i can think of that would affect MMS. But it would ALWAYS affect them rather than what your describing.

Software shouldn't matter
HTH

Never did that either, just tried it and it worked from my 4 to my wife's

Well a 3GS wouldn't be on Verizon, only the iPhone 4 has a CDMA version.

Is his phone jailbroken or not running on AT&T?

I had him do a hard reset & it worked. I thought he had already done that, but no.