What is the policy on uploading fiction
I believe that I would be able to find a large amount of people willing to allow me to upload their fiction content on Duolingo. Would that be alright, or is this only for news articles and other non-fiction material?
If you get the permission from the copyright owner, you can upload fiction, too.
The easiest way would probably be for the author to release their work under a suitably free licence. For example, if your friend declares that their work is under the Attribution-ShareAlike licence ( http://creativecommons.org/licenses/by-sa/3.0/ ) -- and puts this statement in the text itself -- it should be clear that it's fine for Duolingo translation.