Yip, agreed, don't lie. It will almost certainly come back to bite you!
The more open and honest you are, the more they will like you, the more chance you have of getting the job.
I have always been brutally honest in interviews. "Do you know this?" "No, sorry, but I can learn"
I also think it is definately their business what you currently earn. They need to know in order to ascertain if you fall into the salary bracket they are offering.
Remember not every employer is out to get you, they just need to know these things in order to hire the right person.
Agree with not lying... Definitely disagree with it being their business. They are hiring you to do a job - what they offer you should be based on your ability to do that job. Your current salary has nothing to do with your ability to do the job because it could be your employer underpaying you or that you're not a fantastic employee - but they will use the latter in determining your salary because it's to their advantage to pay less to keep costs down.
Either way it's an unfair prejudice - they should use the interview to ascertain your skills levels through testing and other verbal questioning and use this to decide - they can even phone your previous manager and ask them - I just think using your current salary really has nothing to do with a persons true worth.