I found out that I needed to call Packet8 technical support to have them remove my phone number from their database. Don't ask me why they did not do this automatically when I canceled the Packet8 service a few days earlier.
After they removed my number, my Packet8 friend could call me no problem.
I don't know how the system works, but when you change VOIP providers maybe you always need to make sure your number is deleted from the old system to avoid this issue.
Just FYI for other people who may run in to this busy-signal issue.