How would you deal with an honest kid?

I think you should gently tell him that it's rude to tell people things that aren't nice, even if they are true. Try not to make him feel bad about what he did. Every time he does it, tell him that it's mean and he should stop. If he doesn't stop after a while, I think you should ground him. I'm not a fan of punishing but sometimes it's necessary. NEVER EVER HIT HIM. That won't help anything. I totally understand where he's coming from. It sounds like his mind works a lot like mine.