What's a nice way to say this?

If Dan asks you out again, tell him "thank you, but I honestly...I just want to keep things platonic between us." You don't have to give him a long explanation, but you do owe him an honest answer. If he pressures you for an explanation, then just say that you are interested in someone else. These things happen all the time. In your situation, there's no tip-toeing around it...you have to tell him you're not interested. I'm sure he would rather know the truth than have you make up some lie...and then see you start dating his friend Eric. Even if this damages your friendship with Dan, that's the chance that he took when he asked you out. He's the one who took the risk, so you shouldn't feel bad. These sticky situations happen all the time in the dating world...they're unavoidable. All you can do is be honest and gracious...and let him down as kindly as you can.