I don't think that's a question that you can give a catch-all answer to, really.

Sometimes, you'll need to lie, if only to save yourself from getting clobbered.

For example when asked "What're you lookin' at?" on the subway, the proper answer is not "I was checking out your girlfriend's rack, hot *damn!!*"

But when it comes to more serious matters honesty is usually the best way to go, in my opinion.

Were I more cutthroat, I'd probably say you'd have to weigh whether the truth would cause more damage than lying, or vice versa, but I try not to play that way most of the time.

Of course, I've done both at times.