I'm sure if you asked your friend as to whether her 75 year old grandma would ride her bike to the local market and ride it back with all her groceries in saddlebags and a front basket, the answer would be yes. Regardless of what that grandmother would be wearing (most definitely not lycra).
Point being, that in the Netherlands (as well as Denmark, China, a lot of Germany, etc. though i've only lived in the Netherlands) bicylcing is an everyday, and often necessary activity (as an efficient transportation mode). Because it is not an exclusively (and surprisingly, a fairly rare) recreational activity, there would be no need to dress in bike-specific apparel.
An exaggerated analogy would be people driving to work, or the supermarket, or gasp their LBS, in flame-******ant suits and full helmets, with their favorite Nascar sponsors all over their SUV.

Regardless, i support people riding in jeans. By wearing "everyday" clothing, and riding for "everyday" activities, then cycling becomes that much more of an "everyday" activity in the American (and for better or worse, global) psyche.