She does embellish or dissemble as the occasion requires:

Portraying Mr Martin as a clown, merely because he smiled so broadly upon seeing Harriet, portraying Harriet too tall in order to enhance her value in the eyes of Mr Elton's kin, attributing Harriet's wavering as a refection on Mr Martin's worthiness.
This is not the first instance of Emma needling Mr Knightely - it started almost as soon as we met Mr Knightley in chapter One ("it is all a joke. We always say what we like to one another.") Of course, Mr Knightley is not at all given to jokes and banter at any time, and this time, Emma's sophist rhetoric has riled him into specifying some home truths about her, her best friend and Mr Elton, that he normally would not have felt free to share.
She is keen to believe that she has benevolent reasons for speaking as she does, but even in her earnest attempts to deceive herself, she knows she is deceiving others.
I think her arguments are infuriatingly clever - particularly as she is twisting a contemporaneous feminist argument, on the merits of allowing women to choose their own husbands!