Imaginations

My DD who is just over 3 has a really good imagination and makes stuff up all the time. I'm guessing I should ecourage it but I do worry that it may enouraging lying? WDYT?

She often says to friends thats she's done stuff when she hasn't and she came upto me today saying that she floated down the dark flowing river, lol! So cute but I really don't really know how to respond. If I get her to talk about it more will she think it's really happened, or does she know it's just a story.
She also loves art and is quite good at drawing, so I'm guessing she'll be quite creative (don't know where she gets it from though, not me!)

Anyone else's kids have a vivid imagination?
Should I just go with it?

Imagination is wonderful. Its hard for kids at that age to differentiate between real life and fantasy but that includes what they see in books, on tv, in their own heads, or what they hear others say. Its perfectly normal and I don't think you have to worry about lying. I don't think children that young lie maliciously - if she does tell the odd untruth its usually innocent. JMO anyway
If you're looking for a way to put a line between fantasy and reality (though remember it probably won't make much of a difference right now) we use to tell all sorts of stories to my mum and she'd sit down and encourage us to tell her and she'd write it down. She cleverly turned it into a story instead of what really happened to us. Similar to what Tui89 suggested
I've read that children who have had their imaginations fostered by their parents are more able to amuse themselves, can achieve higher at school and have the potential for higher success in their lives.

Thanks, I'll encourage it then for sure.