To what degree is it alright to 'peacock' your business and appear bigger than you are, if (a) you're absolutely certain you can cover the client requirements, and (b) the client is choosing between you, and a few other solutions/providers?
Out of interest, did this company do something bad to you? Was the service unacceptable, and did you previously have a good working relationship with them?
In the long run, you aren't fooling anyone with that (they're going to figure it out), it's a terrible, unnecessary mental burden, and your customers will probably find out that you've been deceiving them.
In my first company, my partner and I fell prey to that need to exaggerate our stature. It was almost entirely fueled by our own insecurities, not actual client expectations. In retrospect, we both believe that a large part of our inability to weather the dotcom bust was tied to things we did out of an imagined need to "peacock".
i don't think it's ok to 'peacock'; it's tantamount to fraud.
if your clients are concerned that you cannot cover their requirements, you should address these concerns, not lie to them as this impedes their due diligence. if you get caught, your reputation is destroyed, and i would be surprised if there were no legal recourse.
I certainly agree with your sentiment though - misrepresentation is bad, and to be avoided.
For a sole proprietor who is trying to win business, but has no resources, funds, or choice, I view this kind of 'peacocking' as a functional but temporary solution; especially if the sole proprietor is certain they can fulfill the clients requirements.
but in this instance, for some time, the products were just fine.
a customer's trust is most tested when things are going wrong, not when they are going well.