Depending on the age of the child--I wouldn't tell my 3 yr old singing and dancing around the living room, "honey, you can't sing worth a darn and your attempts are painful to listen to," but neither would I encourage a vocally-challenged teenager to go on American Idol and tell her that she was going to be famous. I do strongly believe that parents should be honest with themselves, if diplomatic with their children, about their children's strengths and weaknesses, rather than falling into the "my baby is good at everything" mindset. I think, at a certain point, kids really need honest feedback about their abilities, and parents need to recognize this if only so that they can better provide help with problem areas and/or gentle guidance towards more appropriate paths, as the situation may dictate. My parents tended to take a "my baby is good at everything" attitude (or, to the extent they acknowledged my lack of aptitude for certain skills, it was only because I was a misunderstood genius and so it wouldn't make any difference anyway), and, while I am incredibly grateful for their open-minded confidence, I think I would have benefited at least from more recognition that some areas were not for me.
What I'm saying, I guess, is that, while I wouldn't criticize a child's performance, if my kid could see that her natural abilities weren't in a certain area, I wouldn't deny her reality or give her false hope by saying "No, you're really good! You can do anything if you put your mind to it!"