I definitely believe in being honest, but I also believe in being tactful with that honesty. The way you say what you say can either be hurtful or helpful. Strive to only be helpful. If it could be hurtful, try to find a way to say it that will take as much of the sting away as possible.
Recently a friend was complaining about a mutual friend who has been having a pretty rough time of it being a real grump. I reminded him that he was the same way last year when he had been having a bad spell. His response was along the lines of "Was I really that bad?" and I told him (with a grin and a hug) that he was worse! If I had just barked at him, he would probably have been offended, but as it was, he kind of hung his head and said "Yeh, guess I was".