Options to being cruel -
Ask what brand of thread they used, and would they reccomend it
Find one block to focus on that has a nice print or color
Praise their ability to get er done
I've done some uglies that I have passed on to others. Every quilt has taught me something about myself. I would rather have someone change the subject slightly than to take compliments dishonestly. If the problem was poor color choices, you may want to reccommend a book that will help them make different choices. If it is true gag-me fugly, tactfully suggest overdying or embellishment could "add" (camoflauge) the worst of it.
There used to be the Golden Rule. Then random acts of kindness. Don't let that end with you.