Thanks for all the suggestions, everyone! All of the beaches in that area are really nice, so anyone would work. I found a few options, so I'll hopefully be hearing back from them soon.
jkquillin, I look forward to hearing if your friend has any suggestions.
It's great to know that several of you have heard of the area. It's really nice. I took my two to Dewey Beach last fall (it was the first weekend where they were allowed on the beach at anytime) and they LOVED it. They even loved the water.

Also, the downtown area at Rehoboth Beach was really nice, and pretty dog friendly.
We also took them to Assateague Island (they have wild horses), which is about an hour drive, and they loved it. Britney kept trying to bark at the horses.