In general, Sheik's whole game versus Fox is her edgeguarding him so well. It's apparent your friend likes to go low and sweet spot the ledge to recover, so as soon as you knock him off you should just ledgehog immediately. Eventually he'll adapt, but that's a start.
Those standing needles you're throwing aren't so good either. There's lots of lag afterwards, and the Fox is capitalizing when you throw them. Edit -- Wow, I just took a second look and you just wavedash back, throw a needle which may or may not hit him, and then he just runs right in and nails you. No more standing needles, only throw them when you are in the air.
A big part of your game should be grabbing, D-throwing, and chasing the tech to a D-smash. It's so effective with Sheik versus Fox/Falco/Falcon.
And the waveshining is a bit ridiculous. He's leading into you with D-airs, then waveshining. That doesn't really work. You should either be shielding his D-airs (and holding the shield for the subsequent shine), or wavedashing backwards and D-smashing (he'll land just infront of you).
You aren't DIing his U-throw, which is a huge problem. It just makes it too easy for him to follow with an U-air.
You need to D-tilt way more too when he tries to recover. His toward-B recoveries get eaten up by D-tilt to shorthop F-air.
Also, you need to dash dance in and out sometimes, like when he jumps in the air. Dash away, then dash back in. You're standing in place a lot, and he just aims for the spot you were 2 seconds ago when he left the ground.
Finally, stop randomly jumping in the air. Think about it, Fox punishes people that are above him. He can U-air, B-air, N-air, U-smash, U-tilt, etc. He eats you alive when you jump up there. Keep your *** on the ground. You should be focusing on staying on the ground, and mindgaming your way into a grab or dash attack, or to the point where you can F-tilt him, or F-air him the instant he leaves the ground.
Those are just some observations, it's hard to tell you exactly whats wrong when it isn't in person, but hopefully you get the idea and can use some of that.