And sometimes the company really does prefer people who know how to package uncomfortable facts in a more diplomatic manner. Nobody wants blatant liars, but giving a positive spin on things is a surprisingly valued skill.
Other than questionable ethics, it can lead to immediate termination.
But as always, there's lying and "lying". Saying you quit when you were laid off, I would consider lying. Telling you needed new challenges when in fact your boss was so toxic you wanted to quit the universe, not lying.
In the end, a job interview is a courting dance and you'd want to put your colorful feathers on, but at least they should reflect your reality.