How is making a truthful observation rude?
Just thinking of my day today I could have made a number of 'truthful' observations about people's appearances, hygiene, parenting skills (or lack thereof) driving skills (or lack thereof) and clothing tastes that would have been in some cases, devestating had I verbalised them.
Silvery - no you don't tell him off, you explain to him that some things are for sharing and others are not, that some things are nice to talk about and others are not.
Thankfully, I think I've only been on the receiving end of a child's "honesty" once, and that was genuinely quite funny as I had just had my hair cut and it was a bit shorter than expected. My friend was trying to insist it wasn't, when a toddler said, "Mummy, why does that lady look like a boy?" 
His mother said, "No, she doesn't and you don't say loud things about people like that."
See, it's not really hard, is it? 