As a mother of a rough and tumble 3 1/2 year old boy, I know how embarrassing it is when my child gets out of hand with other kids. I try to plan any kind of get-together that inevitably involves children either in a neutral environment (like a park) where my child can run manic all over without endangering anyone, or coordinate a time of day that is more relaxed for him. Middle of the afternoon when he sometimes naps is usually a bad idea, as he can get very fussy and not control his emotions well, or before he's had any free play time and has too much energy is not always good either, unless we're meeting outside. He is very high-energy, very sociable, loves meeting new people, loves rough play, and rarely means to hurt anyone (even though he sometimes does). He has bruised and scratched me on several occassions and is very strong for his age, but unless he is in the throws of a tantrum, he is usually just playing.
I would never ridicule another child out loud for crying or being upset about being hurt (even if I wanted to). I would also NOT be offended by a friend saying something like, "I know that your son sometimes plays a little more rough than my kids--is there a good time of day when he is usually more worn out and likes to play quietly?" or "I'd love to come by and visit--could I visit during naptime so we can chat more comfortably?" If you are good friends, you probably want to continue your friendship, and tactfully trying to plan around that would be fine. Although your child is trying to mediate, 3 year olds still struggle to learn sharing and you might also give your child some play pointers ahead of time to make things go more smoothly. You can definitely let your friend know that you do not let your children play the way hers do and if she cannot respect that, you just might have to get together without your kids.
As a follow-up, I let my children play more roughly than a lot of parents, but I also teach them that that is only at home, and not with other people's children, and only when everyone wants to--if his brother is trying to read, he should not whack him with a sword. My boys play with foam swords and pretend to be Transformers or Ninja Turtles (from the cartoons, not the new movies), but I also know what my friends do or don't allow their children to do, and we do not play swords or shooting with other children over. He knows to be gentle with other children unless they, with approval, are engaging in slightly more boyish play. It is perfectly fine to let your friend know these play boundaries and she should do her best to respect and enforce them. Just as adults censor their language in specific company, children can learn to modify their behaviors under different circumstances.