It's wonderful to hear from parents that are encouraging their kids to spend hours playing outside using their imagination rather than playing video games inside.  Your child sounds very creative and fun!  Children learn significantly through play, so it's always a great idea to encourage them to play, use their imagination, and pretend.  You pose a great question as to where to draw the line between using ones imagination and lying.  

Take some time to sit down with your child and explain the difference between pretending and lying.  Using kid friendly vocabulary, explain that making up people, situations, and places is ok when they are playing at home, on the playground, or at a friends house.  However, when talking to adults about something serious, or at school during class time it's important not to pretend or tell fibs.  Give them a few "real life" exmples of what a lie is, and what using your imagination is.  Tell them about a time when you told a fib or lie and what the consequences were for you.  Then ask them to give you an example of a lie and an example of pretend playing so you know they understand the difference between the two.  Also explain that if they continue to lie they will earn a consequence each time.  If you become aware of certain situations in which they have been lying address it with them and follow that with a consequence.  Also, give them praise for times that you see them using their imagination in appropriate ways.  They will learn through simple behaviorism when it is ok to pretend and when it's not.  

Keep enjoying the fun you and your child are having and encourage lots of creative play!!

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I think that you post an important question that many parents can relate to. First off, I think it's wonderful that you encourage your child's imagination and I applaud you for approaching the issue of lying carefully. The link I have attached is a wonderful discussion of helping understand the reasons behind the lying. Perhaps your child is trying to impress you or make himself feel more special by creating stories of winning awards. You could help him understand that he doesn't have to win awards for you to appreciate his wonderful talents.  A child of his age can understand the difference between fantasy and reality when it comes to the topics you are discussing, so you might play a game with him where he has to identify, which is true and which is a lie. Approaching the issue in a playful way will get you more information and help your child learn. Then as your child demonstrates that he understands the differences between truth and lying, you can emphasize the importance of truth in maintaining trust. Good luck. Hope this helps!