Lie-ability

Peregrine has always loved stories, whether they're read or told or acted out. And almost since he could talk he's liked to retell the stories he hears. The funny part is that he tells them in the first person, as if he was there, only he adds in small details that would pertain to him. For example, if I was drinking tea in the story he would change it so that he was drinking steamed milk. Erik tells him a story every night before bed- it recounts the day's adventures that they've had together in far-off lands. The next day Peregrine tells me about the tigers he and Daddy hunted or the dragon they slew, or about riding motorcycles across the ocean floor or going to the moon.
Lately Peregrine's penchant for story-telling has crossed the line into telling lies in order not to be disciplined for something he's done. Most of the time the truth is quite obvious to me, and when I ask him directly about it he'll admit it, but there are times when I'm not 100% sure he's lying and I don't know how to deal with it. The humorous part of it is when he's caught lying he's taken to saying "I'm not liable! I'm not liable!" I don't know where he heard the word, but it's clear he thinks it means "I'm not lying!" (Of course I don't laugh when he says it, as funny as it is!)
This morning he woke up up way too early, and after I cuddled with him for a while I put on his bedtime CD and told him he could get up when it was over. The CD is an hour long and after 20 minutes he cheerfully trotted out of his room and said good morning. I asked him if his CD was over and he said it was, and then I asked him if he stopped it and he immediately denied it. I took him back to his bed and asked him again and he gave me the same story. I told him it was not the truth and then he made up more of a story- that he was in his bed and he heard song after song after song for a long time and then he heard the "click" and it was over! (He apparently forgot that CDs don't click when they're done.) I told him he would stay in his bed until he was ready to tell the truth, since getting up was what he hoped to accomplish by the lie. For the next hour I returned to his room, asking him again what happened and he stuck with his lie. I prayed with him, and left him until he finally admitted that he had gotten up and turned off the CD. He apologized to me, and we both prayed that the Lord would help him to always speak what is true.
We do have a clear consequence that happens every time he tells a lie, and we read Bible verses about lies, mostly from Proverbs. I wonder sometimes if he really believes what he's saying. (I know the "experts" would say that kids his age do believe they're own lies, but I certainly don't think you do them any favors by overlooking it.) It's definitely not something we want to allow to grow in his life.
I'm wondering how other people have dealt with lying with their children. What consequences have you given, and what seems to have helped them understand the importance of telling the truth? What about when you're not positive they're lying, but pretty sure? I'd appreciate any advice on the matter, as well as your prayers for us and for Peregrine. Thanks!