For the most part, I really believe you should be honest. Tax returns, filling out applications, how you feel about someone.
But there are times when being "brutally" honest just isn't appropriate, i.e.: "That dress doesn't look good on you," "What in the world did you do to your hair, it looks awful." I don't advocate being dishonest, but a better way to handle them would be to search for a compliment in whatever you are staring at with revulsion.
And I agree with the guys on the questions that have to do with weight. If you ask if you look fat or if you have gained weight, I will answer with I hadn't noticed. Because, to be honest, I haven't.