So, how much of the count can be attributed to exaggerations, how much to piloting skill, and how much to the way that pilots were managed?

During the war itself, everyone over-reported/exaggerated air victories, not just the Germans. It was often difficult to confirm if a damaged aircraft had crashed or escaped, or if one aircraft had been engaged multiple times by different pilots. Post-war studies then had the job of cutting down the war-time claims to those that were supported by the record.

Now, for the Germans specifically, some pilots and tank commanders became household names, which as you said makes their tallies controversial (for example, Wittmann and Rudel). However, the general consensus is that German fighter claims are accurate for the most part.

The principal reason that German fighter scores were so high is the Eastern Front and the nature of air combat there. The vast majority of German fighter kills were achieved before late 1943, when the Soviet air force began to catch up to the Luftwaffe in terms of technical parity, tactics, and skilled pilots. Until then, there weren't many Soviet fighter aircraft without clear disadvantages against German aircraft in various areas. The I-16 was obsolete, the Mig-3 was less effective at the lower altitudes that engagements in the eastern front were typically fought at, the Lagg-3 was underpowered and suffered from poor construction, and the Yak-1 was poor at energy fighting. Throw in the hordes of relatively unprotected Il-2, Pe-2, Pe-3, DB-4, and SB-2 bombers/reconnaissance aircraft, and you have a very one-sided war in the air, which only changed when better-trained Soviet pilots came through the system with better aircraft such as the La-5 and the Yak-9.

This one-sided situation was unique to the Germans; while many of these high-scoring aces were very skilled and well-trained, you can't really elevate German piloting ability relative to other countries, because there were simply no opportunities for American or British pilots to come close to the engaging the same number of aircraft. For the bulk of the war, the German air force was outnumbered in the West, and the opportunities for achieving 100+ kills simply were not there for most Allied pilots.

Another factor was pilot management; there was very little rotation compared to the British or American air forces, were leading pilots were sent home to serve as training instructors. This further imbalanced the opportunity to score kills relative to their Allied counterparts. In fact, as the war went on, German pilot skill began to sharply decrease, especially over the western front, as the leading pilots were eventually killed in combat and fuel shortages made training replacements difficult.

"wehraboo"

First off all of my love for using this term; I too am strongly disgusted by wehraboos.

However; there are several things to remember in WWII when it comes to kill counts (be it on ground, or air). You point to exaggeration of tank aces, so you already probably have an understanding of what I'm about to say:

Kills from the air are incredibly hard to verify, and with the exception of some isolated gun camera footage were hard to verify independently. Luftwaffe air to air victories were confirmed by fairly standard methods; a claim is filed, a witness or gun camera footage must confirm (a) the hits and (b) the bail out, or total destruction of the enemy plane.

Here's the kicker...without further evidence the confirmation would not go past the immediate squadron; in short you'd be on paper as having this many kills for your wing, squadron and group, but not technically in the force as a whole. However when you factor in media, word of mouth, and the propaganda mill, I doubt seriously this technicality would've mattered. Relying on witnesses in scrappy air to air combat probably leads to wild exaggeration.

That's equal to the production runs of the P-47, P-51, and Yak-9 combined, the 3 allied fighter workhorses of the European front. I understand that not all air-to-air kills, or even most of them were between fighters, but rather fighters killing bombers/attack aircraft, but the 42 thousand number just seem absurd. Never mind the kills made by run of the mill, non-ace pilots.

"Air-to-Air" victories may be a bit euphemistic as well. You strike an excellent point.

I wonder how many 'on the ground kills' are being counted (my guess: Probably quite a few) and its telling that a majority of the aces in that list flew and fought on the Eastern Front. Unlike the Western Allies, the Red Army airforce was constantly playing 'catch-up' and always lacked for experienced pilots (broadly speaking) so therefore suffered disproportionate losses. Kills on the Eastern front are probably relatively accurate, and many German generals described fighting the Red Air Force as 'infanticide' for good reason.

Final two notes:

1. This over exaggeration was common to all fronts and air forces, with US and Commonwealth ground fighters often wildly exaggerating the material damage they caused. Why then would the Luftwaffe be any different? It seems typical that in a target rich environment, a dominating air force begins to wildly over-estimate its actual kill count.

2. Wikipedia isn't a source, it just isn't.

Independent sources broadly relied on:

"Overlord: D-Day and the Battle for Normandy" Hastings, Max

"After D-Day: Operation Cobra and the Normandy Breakout" Carafano, James Jay

"Decision in the Ukraine" Nipe, George M.

All three sources talk about the role aircraft played in major offensive operations; how target identification was difficult, how friendly fire was tragically too common, and how actual 'kills' weren't as material as the disorientation and suppression of enemy positions overwhelming air power caused. The final book, in particular, mentions how many tank attacks by the Germans were broken up in their assembly areas by air attacks, but actual material losses were relatively low.

As an aside: Air power in general, and its role in battles like Normandy, have been seen to be more from a 'disrupt and interdict' role then an actual 'kill in the open.' Most numbers of killed tanks are now openly disputed, but the effect constant air attack has on enemy morale, psyche and organization cannot be discounted.

I really wish I knew more about air-to-air warfare to pick apart your friend's point more, but I think we can draw co-relation between ground attack exaggeration, and air-to-air exaggeration and call it a job decently done.

Edit: Well, someone who does have knowledge of air-to-air warfare responded, so there you have it.