(California) Landlord claims that last payment via money order caused a 10 day hold at bank, now wants cash ONLY?? ?

It IS his fault.  He should have paid it 10 (11 days earlier to be safe) so that the hold was off by the first of the month.  He chose to pay by money order - how is that not his fault?  He MUST pay how the landlord decides.  If he says cash only, then it is cash only.  Either that or eviction.

One thought is that if your friend gets a bank check from the same bank where your landlord is making the deposit then there shouldn't be a hold of more than 1 day. Your friend could even open an account there and transfer the money directly into you landlords account - if you landlord will allow this. If neither of those options work for whatever reason then go ahead and pay with cash, jsut do get a signed receipt with every payment.

Thats garbage...if the lease doesnt stipulate that the payments need to be in cash...then they arent required to be in cash. 

That said...where did they get the MO?  Was it from a legit source?  If not, thats the reason for the hold.  

Writing a letter would be pointless.  All he has to do is make sure he gets a receipt. 

He can just get a receipt for rent paid. Writing a letter does nothing.

It's an issue between the landlord and their bank.

Unlike with a personal check, there is no reason why a money order would be held for any time, as it is a form of money, and all the bank would have to do is clear it from the issuer of the money order. Money orders cannot bounce, unlike checks.

Beyond that, what does the lease specify in terms of acceptable forms of payment and what do local laws say about this ? Since you failed to specify a location, no one here can look up that location's relevant laws for you.

Contact your city's landlord/tenant hotline, they should be in your white pages phone book. You can also call Legal Aid and ask them.

Read your lease. If the lease doesn't require a cash payment, the landlord cannot legally demand it until the end of the lease. If renting month to month he can with a month's written notice. Complying with the demand and writing a letter saying you oppose it doesn't make any sense. Better advice would be to tell your friend to get a checking account and begin to write checks, or perhaps to provide bank transfers to the landlord. The bank would provide a record of the transaction in case payment was ever challenged.

The problem was with the landlords bank, not the tenant. I never have holds on my deposits. Why would the landlord need immediate access to the deposit?

It actually is your friend's fault because he paid with a financial instrument that put his payment ten days in arrears. Knowing that it caused a 10-day hold at the bank prior to deposit as you now do, you should advise your friend to either pay in cash (get a receipt), or give the landlord a money order 10 days before it is due.