When asked about where I wanted to be in my career by my boss (boss' boss actually), I was honest about having my resume out there and looking for other opportunities outside my current company. Now, I've heard from other sources a promotion that was possible in my future has been basically pulled.
Honesty is not a good policy. Keep lying.
Everyone says they want the truth, but if you are told you're not doing meaningful work, the justification for your job is vanity metrics, and the guy with less experience than you who does terrible work makes more money than you, how happy would you be?
If you told management, you're using the position and any promotion as a jumping off area for a newer better job at a different company, how happy would management be?
Why would they have to be idiots? Doesn't this just create a crummy atmosphere where promotions only go to people unwilling or unable to leave the organization?
OP: "When asked about where I wanted to be in my career [...] I was honest about having my resume out there"
He didn't "advertise" it -- he just gave a honest answer when questioned. If this is "advertising" for you, then your "default" behaviour would be "be economical with the truth", i.e. white lies, i.e. being fundamentally dishonest... which means OP is right.
"I am actively looking for jobs at other firms" is not an answer to the question of "where do you want to be in your career", except insofar as it can be read to imply an answer of "not here".
So, it was honest, but not really (except indirectly) an answer to the question asked, and quite likely, in any case, not the most productive and relevant honest answer.
If the reason other opportunities were being sought is that those opportunities offered features X, Y, and Z that the employee's current position didn't, an honest but more direct and relevant answer would be "I'd like to be doing more of things like X, Y, and Z". That would directly answer the question, and provide something positively actionable by the employer, and be no less honest than "I've got my resume out and am actively looking at outside opportunities".
There's two possibilities (based on the scenario as described): either the employee was fed up with the company and really wanted out, and then the answer given was not only honest but reasonably relevant (if somewhat, perhaps diplomatically, indirect), or the employee had particular things they wanted in their career that they weren't currently getting, and failed to give the most relevant perfectly honest answer to the question asked, and instead gave an incomplete, tangentially relevant non-answer which implied an unfortunate and inaccurate answer to the question actually asked.