I've known people who embroidered or even outright lied a lot. It didn't particularly bother me though. For one thing, since I know their words aren't to be trusted, I don't but any trust in their words, and so I'm never harmed or betrayed by their untruthful ways. Second, when someone tells a story it's not about whether I'm interested in the story, whether I benefit from hearing the story, whether the story is 100% plain and unvarnished truth -- it's about the pleasure the person derives from telling the story. I'm not going to take their fun away from them with irrelevant observations like "Last time you told this story you it was a Denny's, not an IHOP."
So protect yourself from being harmed by this person's bad habit, but stop tying yourself in knots about it.