From what I've read, it's definitely a mental disorder--or, more accurately, a symptom of a mental disorder, since it doesn't have its own official diagnosis quite yet. It may eventually. Right now, from what I was just looking up in the DSMIV, it's nearly always a component of antisocial personality disorder, which used to be called sociopathy. It can also seem to be a component of dissociative identity disorder, where a person has little periods of dissociation and doesn't remember saying or doing things and then appears to be lying afterwards. That same sort of thing happens in some of the more severe bipolar disorders, too. Addicts and eating-disorder patients struggle with lying, too, but usually not quite as extremely as sociopaths.

I think I've read the clinical term "psuedologia fantastica," if I'm not mistaken, but I think "mythomania" is another way of saying it.

I had a cousin who had a bad, bad case of the problem, among other serious mental health and addiction issues. He'd lie to you soon as look at you. He came to no good ends.