transmission problems

What is your question?

So i let my buddy borrow by '01 TT Quattro for a night. When he brought it back the next day I started it up and could smell hot/burning clutch. I depress the clutch and it feels normal but when the engine is running it will not go into gear. When the engine is off however it will. So the clutch is not disengaging in order to put it in gear. What would cause this problem along with the burning smell. Is it something minor like the clutch master cylinder is messed up or is it worse than that?