The rules I strive to live by regarding honesty are pretty simple. If telling the truth will help someone, or make things better, tell the truth. It may hurt them now but help them in the long-term, that's something you have to use your own judgement on. If telling the truth won't help someone, or even hurts someone with no long-term benefit to balance things out, then kindness is more important than honesty. If telling the truth will help one person and hurt another, you have to make a judgement call.

Another important aspect of my feelings about honesty are that you can be honest without necessarily telling the whole truth. This comes into play a lot in professional contexts, particularly when dealing with clients/customers. For example, if you're working as a salesman and a customer asks you what the best product is within their price range, you should give them an honest answer even though it might not necessarily be the most expensive product (which it would be good for you and the company you work for if they did buy). But, you're not (I feel) morally obligated to tell them that they could get something better for the same price elsewhere.