We were pretty much completely honest with DS7.
In our house, we use the correct words for anatomy, we talk openly and age-/maturity-appropriately about topics like sex and drugs, and we acknowledge GTness by using the word "GT." It's just reality. We talked about testing as "something to help us understand what he needs and to help us make some decisions about school." That seemed to make sense to him.
(We did talk extensively about testing in practical terms so that he knew to answer even the easy questions, he wouldn't worry that he'd "failed" if he couldn't answer everything, etc. But I think that's separate from what you're talking about.)
It is important, I think that we also made/make very clear to him that everyone has strengths and weaknesses, that bragging about *anything* makes other people feel bad and will often make them dislike him. He had a friend who was a braggart when he was 4 or 5, so he got it immediately. The only time we had trouble was when he was miserable and very ill-fitted to his class in 1st grade. Then I heard him brag about being "the smartest boy in his class." I worried! Fortunately, we pulled him out soon after, so it wasn't the end of the world. But I really think regular bragging is a sign of a poor fit and insecurity. Now that he's challenged, the word "GT" pretty much never leaves his mouth. It would be like talking about his ear. Why? It's just part of him. Nothing to say.
All-in-all, I don't like the fairly common notion that being GT is something we can't talk about or something they can't know about. They know. Putting a word to it just makes it easier to discuss with us. But that's just me, and I tend to think that ANYTHING is fair game for discussion...
