Narcissism And Lying

Yes, most Narcissists lie habitually, about pretty much anything and anyone, for serious reasons and for very petty reasons. N's who do this may constantly make things up about themselves and about other people in order to manipulate whatever situation they're in, so it's in their favor. Tiny things or very big things, no thing and nobody is "immune".

They will imply nasty things about others, even their "loved ones', that aren't true, just to gain sympathy and attention from others. They'll exaggerate or make up illnesses and injuries, completely re-write conversations they had with others and then tell someone the "edited" version, they'll simply fabricate parts of their past, their present, and their future, and about OTHERS as well. Most N's will lie TO or ABOUT anyone, and anything, in order to make things the way the want them, and to put themselves in a "good light".
It does appear that many are actually delusional: they believe the lies they make up; their brains create a different version of reality, and they believe it, and then speak and behave accordingly.

Sometimes they get caught when they've gone "too far" with outlandish rumors, or get tangled in too many opposing fibs, or trash the "wrong" person, but often they stay undetected because:

While they're lying, they're acting as innocent, as well-informed, as injured, ill, and compromised, or as victimized as possible. A very large number of people fall for the act, hook line and sinker.

In most cases they did develop this habit as an unhealthy coping skill during childhood, so it's often deeply seated.
It's important to note: When one FEELS innocent and above reproach, it's much easier to convey the image of genuine innocence, and it's much easier to understand why they would feel defensive.
Regarding the people who fall for the act: It's one thing to fall for the facade another person is trying convey about themselves;
it's another thing entirely to go along willfully with slander and gossip, whether it's serious or seemingly trivial, about someone else.