Trust, loyalty, being straight-up. Whatever you want to call it — being honest is crucial for everyone. No one wants to hear things that aren't good... but they definitely would rather have the ugly truth than a beautiful lie.
What to do: Yes, there are people who lie to portray themselves better to others. But too often in established relationship, people aren't honest because they: 1) Don't want to disappoint the other person; 2) Don't want to be judged for their choices; or 3) Don't feel that their truth will be accepted. For honesty to exist, it needs to be safe to tell the truth. Make it safe and don't judge. If they lie, that has nothing to do with you. And by always telling them the truth, you are not only keeping your integrity, you also allow them their dignity.