"Honesty never damages a cause that is just."
-- Mahatma Ghandi
Recently, a client mentioned to me a fact about his case that could reflect poorly on him. He asked me if, when testifying about it, he could say, "Well, the reason was X." My question: "Is X true?" He cast his eyes down, and admitted it wasn't. I told him he couldn't testify that it was.
Putting aside any ethical or moral issues, there are lots of practical reasons to be honest in litigation.