8 year old "creative stories" or lying - how can I handle this?

[happygelfling]

DD is 8 years old and has a wonderfully active and creative imagination.
She invents fantastical stories about animals and creatures (such as unicorns) that she interacts with. This is fine because it's clear to everyone that these stories are entirely fictional and we can all enjoy them.
But frequently she also creates stories that could be real. For example, she embellishes DS's (factual) stories about what happened in school today with things that she says she saw, when she clearly wasn't there.
If I even hint that she's making this up, she is very adamant that it's true and gets very emotional about the whole thing.
I want to somehow make it clear between us when she is telling the truth and when she's making up stories. I also don't want to curb her fantastic imagination.
Any suggestions greatly received! Thank you!