I am confused regarding this verse. I have many friends who are non-muslim, but have helped me in many things, and I have helped them too. Should I break my ties of friendship with them?? In the context of this verse, does "Auliya" mean friend in general or does it mean guardian/protector???
The referenced verse is talking about the context of warfare (hostile Jewish/Christian militants), as in: do not take the Jews nor Christians as allies (in battles), forming coalitions against the believers (Muslims). So if your friends are righteous, virtuous people who don't pose a negative influence upon you, and don't lead you astray from the righteous path (your religion), then you don't have to break ties with them. Otherwise, find friends who aid you in doing the best of (ethical) deeds that please Allah Subhanu Wa Ta'la, because at the end, this is our ultimate goal in life.
Also, read the following verses: 60:8 and 16:125.