My wife and I live somewhere with very few Jews, and in which we are the only Shabbat-observant Jews in the city. Sometimes we invite some local Jews for Shabbat. Sometimes people bring food, intending for it to be eaten at the meal. One Jew in particular is quite serious about Judaism and knows many laws of Kashrut. His wife is not Jewish and his kitchen is not Kosher, and he uses lemon- he really tries to make things Kosher, but a non-Kosher oven + non-Kosher utensils used making things that are sharp makes it non-Kosher Lechatchila. Am I allowed to eat these things on Friday night, which are not totally Treif perhaps but which have Kashrut problems, in order not to offend my guest? He would be very offended if we did not eat his food, because he tries to show how Kosher he is (he feels he has to prove these things to compensate for the fact he is married to a non-Jew), so the other option would be not to invite him at all, which is what we have been doing recently. There is also the problem of Tiltul- people carry things over, and there is no Eruv. Would that make the food prohibitted to eat because it is being brought violating Shabbat, even if we were to ignore the Kashrut issues?
It’s hard to answer the "right" answer without knowing the persons involved. The wish not to embarrass a human being is a noble feeling but is not an excuse to transgress the word of Hashem. From my experience, saying the truth is the best tactic, be very gentle and considerate, be sensitive to the feelings of your neighbor, but say it clearly. Try to explain that you maintain a higher level of Kashrut, nothing against him; you still love him and would like him to come over on Shabbat.