I think it could possibly be handled better than that. I'd suggest that if the OP decides they would like to stay at the current employer, but only if the current employer offers what the employee feels they are worth (or if the employee wants more than they are currently getting), they could very politely say

"Listen, I really like working here, I like that you guys do x,y,z, that I have the option to learn from/about/with.. whatever, but I've just had a great offer from Acme company, and I was going to take it, but wanted to talk to you guys about it before I accept."

That way the company understands why the person is leaving, that they haven't agreed to leave yet, it is in the employers hands to keep the employee if they want to.

We have a fairly small industry (and even if we didn't) you're going to be running into the same people again and again though your career. Neither side should be hurt in this. It's a business proposition. Friendships don't have to end, cooperation doesn't even have to end. MAKE SURE YOU ARE NOT LEAVING YOUR CURRENT EMPLOYER IN THE LURCH. Give them time for you to clean-up what you're working on and get it in a good state, etc. etc.

As long as you're professional (and the OP's original posts suggests he is professional and courteous), the current employer shouldn't take it as anything but.

Agree with other replies: there are ways to approach this that will cause friction, and ways that might not ("I wasn't looking, but this came along, now I have a tough decision...").

And no matter what your approach, some bosses will take it one way, others another way! And that's OK, do what's right for you, don't make your choice based on whether you get a cold reception or not.

Well, if I was the employer, i'd like my employees to come to me and tell me that they have better offers and discuss possible course of action BEFORE accepting any offers, rather than just accept the job and leave. This way if I want to make a counter offer, it gives me a chance to do it, otherwise I might admit I can't match the offer and wish him best of luck, no hard feelings.

I disagree - it gives your current employer the chance to retain you, assuming that you are on great terms with that employer and you really like the job.

It's just business. Everyone knows that the quality employees almost always already have jobs - chances are good that your company also will poach candidates similarly.