Yup, honesty IS the best policy but not brutally honest.
For example: if you and your lady friend are going out for a fancy dinner and she comes out wearing something totally unappropriate, you don't say "hey you idiot, we're going somewhere FANCY not to an orgy"....
You say: hey hon? That's really hot but I think where we're going it is a little more reserved. How about you put on that LBD that you like so much?
I made the mistake once of commenting on a GFs new shoes that she was so excited about. I called them "pilgrim shoes".....3 yrs later I was still hearing about it......
But be forewarned: even when you're being honest a LOT of people think you're lying or BSing them...just because so many people do......
I left a company who continually and constantly had us lie to our customers and suppliers and I just couldn't stomach it.