The one thing I have always done is not give more information than the question requires. Like the prostitute question - someone who has sex for money. That's a perfect answer, age appropriate of course. We don't lie to our kids. Other than it's the wrong thing to do, children discovering the truth from someone else kind of shakes their little world and the people they should trust the most, you the parent, is a little shattered. If you lie because you're uncomfortable answering questions, tough shit. Suck it up and do the right thing by your child.
I agree with Jennifer about Santa/The Tooth Fairy/Easter Bunny things. I have great memories of these from my own parents and my children do as well. Those "myths" have evolved into cherished traditions that we still observe, even though all our kids are much older now. For example, when my oldest son was small he was very concerned about how Santa would get in the house. We didn't have a fireplace and he didn't want Santa ending up in the furnace. I found an old fashioned skeleton key, tied it with ribbons and we hung it on a nail outside the back door. This was a great solution for him and a tradition we still do every Christmas Eve, even though we now have two fireplaces in our house. My husband's children were just tickled with the key as well, even though it was a totally new tradition for them. Just like they thought it was magical when I sprinkled a little glitter on their pillow when I left money as the Tooth Fairy. That's what my dad did for me, it was a cool thing to do.