Sometimes. It’s a neat way to honor my friends and family. There have been times where a friend has just “popped” into a story. I see a character as that person. I love when that happens. Other times, I fit them in. They’re almost always minor characters, since I have to get so intimate with my main characters. It would feel a bit weird to “see” that character as a friend. I mean, come on, I see them naked! And doing, er, adult things. I really don’t want to picture my good friends doing those things.
I do use their traits or sayings at times. As for putting in a cameo appearance, I always ask their permission. (I’ve only had one person say no, though I’m not sure why.) The difficult part is capturing them. As well as I know them, it’s very hard to capture that person and his/her quirks. So usually the character is a composite of them, not a duplicate.