I'm only guessing (I don't have any inside information), but I think that Dave probably HAS told Billy what's what (about genetics, building a natural base, potential, etc.), straight up, no BS. Billy probably responded that he was determined to juice anyway. So, hypothetically, if Billy is going to do this BBing thing anyway, why would Dave NOT want to distribute some charity and help out?
I think Dave is approaching this Billy Gunzzzz situation from a good place in his heart. He's a sought-after expert on diet, and an all around nice guy. He gains nothing by associating himself with Billy--actually, he loses because of all the flack he's receiving. And he surely can't need the money. So charity is my best guess as to what Dave's motivation is, and I respect that.
As for whether or not Billy should be competing... that's for him to test at his first show.