I thought it was just a flip comment I was making.
But to examine it further, Labyrinth is a story where pretty much all the characters lie, where deception plays a very strong, perhaps even central role. Hoggle and Jareth lie to Sarah on multiple occasions, Sarah lies to herself, Ludo's fearsome appearance belies a loyal and friendly nature. And arguably, what defeats the Goblin King is the assertion of truth of "You have no power over me."
Sure. Those are characters
within the tale lying to one another. That happens all the time. It's not literally every single interaction between every character ever, but it's very common. As you say, the lies can even be a character lying to herself.
But to say that storytelling itself is exclusively made of lies is just ridiculous. Storytelling is
fictional, but something can be fictional without being a
lie. A lie is something told with intent to deceive. Something that has the capability of bearing truth in a relevant sense, and which is intentionally portrayed as bearing such a truth, but which is in fact false.
A fictional story that is presented as though it were absolutely 100% literally true would be a lie (likely a massive one, and easily seen through unless the teller is very cautious.) However, in the vast majority of circumstances, human beings understand the difference between a fiction story, something unreal but described in realistic detail, and something that is
masquerading as truth despite being presented as though it were literally true. Children invent stories like this all the time, with the understanding that they are not lying, they are imagining, painting a picture with words. Such storytelling is one of the most quintessentially human acts.
More importantly for TTRPGs, a story which is collaboratively told by the participants involved, everyone participating knows that the story cannot be literally true, that there is no physical reality to which the story corresponds. Instead, they understand that they are participating in a shared narrative space, where each participant gets some degree of control over what future events the story will contain; in D&D, most of that control is vested in the DM, but the other players have a small measure too. Because this shared imaginary space is...well,
shared, there have to be some ground rules for how different participants affect it, otherwise it's not actually shared anymore. One of those rules, generally speaking, is that anything established within the space already remains true unless acted upon by some other force:
ontological inertia, to use the TVTropes term. Things remain as they are unless something acts to make them
stop being things (or to become some other kind of thing.)