A: Before you act, ask yourself: What's at stake? Is it something really destructive? What do I expect to gain from the confrontation? And finally, Is this worth my valuable energy?
If you decide to confront, be calm and open with something like "I don't usually listen to gossip, but I think a miscommunication may have created some wrong impressions, and I'd really like to speak candidly with you about this."
A: Go to the source and ask her or him to stop telling lies, and also to set the record straight—the equivalent of a New York Times retraction. That's very important, because even if someone stops telling lies, the lies are still out there.