Many a times you may have to let your customers know about some bad news – implementation taking longer than expected, your inability to deliver on a committed feature on time, a bad bug in the just released software patch. In all these cases, be upfront with the customers on the real truth rather than some massaged varnished message. Honesty with customer pays and lets you keep their trust !! But don’t wait till the eleventh hour to break the news. When you get an inkling of trouble ahead, let them know and keep them updated from time to time. Explain to them what caused the problem and what steps you are taking to prevent this from happening again.
There is something all of us can learn from some of the airline pilots in this regard. I have always been tolerant of flight delays when they keep me informed of these delays caused by mechanical failures, weather delays, air traffic congestions. My worst flights have been those where they have kept me in the dark without any information. There is an interesting blog entry from a SouthWest Airlines pilot that explains how he keeps the customers informed. Definitely one worth reading.
Software Product Manager by Gopal Shenoy 
Gopal,
I strongly agree with your ideas here. It boils down to common courtesy, professionalism and respect. Many software vendors do not believe in delivering bad news to customers. This method usually replaces facts (which are absent) with speculation (over which the vendor has no control). Facts are always better than speculation.