1) You can choose not to use the ability BUT you decide when you roll.
So your question now, based on the info with your question is something like:
"Can I choose not to use Colossus Slayer after rolling a 1"
2) House rule. There isn't an official version that says anything about hitting friendlies on 1s in 5e. There isn't any sort of critical fumble rule at all. So it is up to the DM/group.
2a) Typical implementations are along the lines of declare the attack you are using, roll, and the DM makes the call on the results. So if you intend to use the Colossus Slayer when you let the arrow fly, it uses it where it lands, enemy, friendly, self, or broad side of a barn.
That being said, 1s always hit friends is terribly daft. You would be very hard pressed to find a worse implementation of the critical failure concept. (They are out there, yes, but this is easily in the running for worst.) There is no logical justification for that other than the DM isn't willing to just pull Colossus Slayer from the rules and say you can't use it. e.g.: think of all those poor people that are killed every year near the archery ranges and Renaissance fests... oh? that doesn't happen? exactly.
Original answer to the question about using the ability. I don't recall the wording but it didn't specify ranged nor did it have the details of accidentally injuring party members. It was specific to choosing to limit damage vs do full damage while using the Colossus Slayer option:
Kind of... you can choose to knock out instead of kill which I think is what you really care about right? PHB pg. 198:
When an attacker reduces a creature to 0 hit points
with a melee attack, the attacker can knock the creature out. The
attacker can make this choice the instant damage is dealt
So you have to use the 1d8 but if they only have 1 hit point left and you manage to do way more than you wanted, you don't have to "apply" more than it takes to knock them out.