You both need to be in the live chess active playing section (where you can both see and place 'seek ads' and view the chat rooms). You need to be 'friends' [check, that they're still listed as a friend in your profile maintenance section].
I suspect you also both need not to have blocked the other (check your blocks).
At which point, yes, you should be able to visit the friends tab, click the handle of your friend listed there (when, they are listed there), and make a 'challenge' by setting the terms of a proposed game.
sftac
I realize that you need to be friends with a person, go to the Live chess link etc, and under the friends tab they should be there, but whenever we are both on they do not show up. I don't understand why so I was wondering if somebody could help me, its driving me crazy!?!? :)