Should I tell my friend his crush is out of his league
Why would you say that to your friend?
Because I need to be honest with him: he's really unattractive and has no chance at all.
It is so mean to put your friend down. You should be kind and considerate to their feelings or you might cause an argument. They might start to avoid you if they find it harsh.
I just told him the truth. I think it's best for him.
Well in that case, I hope that he was willing to listen, and that you were somewhat polite about it.  Now that you have told him not to set his sights so high, you should probably try to help him find someone that he could potentially have a relationship with.