The "Lord, liar or lunatic" argument is commonly used by Christians against other religious groups which acknowledge Jesus as a good moral teacher, a non-godly messiah, or a prophet etc. As such it is sometimes used by them against atheists and agnostics who express the opinion that some of Jesus' teachings are actually ok.
The argument runs like this: if we look at all the things Jesus is reported to have said in the Gospels then we must acknowledge him as either Lord, liar or lunatic. This is generally said in the context of his speaking of himself as the Messiah of God (the latter is disputed) so that if you accept his moral teachings, you must also accept his other claims, or declare him a liar or insane and therefore reject him as a suitable moral teacher. In this way Christians seek to push others into an all or nothing situation where those of us who think Jesus occassionally made a good point can be forced either into belief or total rejection. Partly, this is a conversion tactic, and partly, I suspect, arises out of jealousy and is a "hands off our saviour" approach.
The trouble is, the Lord, liar, lunatic argument is fundamentally flawed. This argument presupposes that Jesus was God, or a perfect man. Were we just dealing with an ordinary man, it is quite acceptable to say that some things he said were true, and others false. For example, Martin Luther is still widely respected among Christians for his doctrine of sola fide, but most Christians accept that his views on Judaism (he was an anti-semite) were incorrect. They do not require that he be perfect, acknowledging him as just an ordinary man, capable of making mistakes and errors in thinking. The lord, liar, lunatic argument is used by Christians selectively - they do not apply it to other figures they accept teachings from, but only to Jesus.
Now, those who are not Christians tend not to regard Jesus as the perfect example of humanity, or God, and as a normal man it is only to be expected hat he might make the odd mistake. That he was wrong about being God, or the Jewish Messiah, does not mean he moral teachings are necessarily wrong also (neither were they original, but that is another issue). We know people make mistakes, we know that people lie, exaggerate or grow conceited etc, but we also know that the same people can be right about other issues. Christians insist we see Jesus through their theology, and accept him as a perfect man without giving us any reason to do so. In essence, they ask us to accept their conclusion (of either/or) before they ask the questions.
This is in no way a decent argument to compel acceptance of Jesus from people who accept some of his teachings. If this argument were to have any validity it would have to be proven that if someone is wrong on one point they must necessarily be wrong on all other points to - this is the challenge for Christian apologists who want to continue using this badly flawed argument.
An excellent treatment, much longer than this, on the Lord, liar, lunatic argument by Jim Perry can be found here.