This is a long way from my usual subjects (!) but the way I see it is as follows:
- there are only two things that matter - your feelings and theirs
- comfortable avoidance of the truth (gentle lies) may come easy at the time but are only going to cause you both further discomfort (at best) in the longer term
- if the request comes from what has been a friendship, the friendship can be saved but only if it is (however painfully) addressed and defined at the time
"Honesty is the best policy" is a cliche and is used perhaps all too often in the modern world by people who don't always mean what they say. Particularly in a situation like this, however, although the truth may hurt at the time, it can save far greater hurt in the longer term - for both parties.
The sad truth is that it is an issue which should be faced and tactfully addressed head on, whether that be over a coffee, a drink, or whatever. Very much a case of short term pain for - not necessarily long term gain - but definitely the avoidance of excessive long term pain.