It's really, really annoying to me. In casual conversation, I tend to assume that people are ultimately well-intentioned and are just embellishing the tale because either they don't remember accurately or exaggerate to make things sound cooler, I usually just gently correct them if I know how it really went down and give them the

face. Anyway, if they're just lying to appease their own vanity, I wouldn't take them seriously but I wouldn't be too mad either. (If their lie slanders an innocent person though, that's just completely inexcusable to me).
Biggest fattest lie I've ever been told was this guy who swore he was not into other guys... I was like ''come on, you know you gay. I ain't no man's beard.'' It was still his business though so I didn't even call him out on it, let him come out when it's too late and he's found passed out drunk in a pink ballerina skirt with a cucumber up his ass.