Telling the truth - kindly unless the relationship/circumstance allows for good-natured ribbing - is always a better option, in my opinion.
I'll give you an example. Ever since we returned from China with our daughter, my wife has taken to scrapbooking. She began with a scrapbook of that experience, and has since created a library of our life experiences since then. My kids years in school/sport, our vacations, etc.
She has a real knack for it. Some of the pages are so beautiful they evoke tears. There are ALL KINDS of different techniques that can be used to creatively and artistically bring the pages to life. She takes classes and watches youtubes (and subsequently buys a lot of gear), and she's always experimenting.
I tell her often, every time she shows me her work, how much I appreciate her effort. It's so much nicer than a regular photo album, and I make sure to tell her. I want her to know that what she does is edifying and appreciated.
Well, one of the techniques she learned was glass etching. We were invited to a party, and her idea for a gift was to give them nice wine glasses (they're wine connoisseurs), and etch them with their family initial. She created a couple tests, and asked me which I liked better.
Problem was, I didn't like either. The idea was nice, but seeing it in reality, it looked a little cheesy. I didn't think our hosts would ever use them, or that if they did, it would only be when we came to their house.
It was hard to tell the truth, but I did, and she appreciated it. I told her the idea was nice, but that now that I'd seen it, it might be a better idea for a set of beer mugs - that I liked the etching but it didn't seem to go with a wine glass. Just to make sure she knew my good intent, I told her that at least in telling the truth, she knows that when I praise her work, I'm telling the truth then too.
She got it, and wasn't offended at all - at least not in any outward way. I think the alternative - keeping my mouth shut and telling her they looked nice - would have been encouraging her to do something she might later regret, or feel embarrassed of.
ETA: That said, commenting on a woman's looks, hair, shoes, clothing etc - even if she asks - is dangerous territory. All bets are off.