The story exists in a setting where gods and wizards regularly slap magical "do what I say or your head explodes" with the best intentions on friends and enemies alike, it all comes down to context; consider, everyone here has used charm person in dialogue for advantage, yes? that's 'sick and degenerate' mind control. [spoiler]
The emperor and Stelmane can also be frenemies, easily. Consider this series of events :
Duke Belynne Stelmane, leader of the Knights of the Shield, is also servant of the pit fiend Garguath, the hidden lord of the shield. She serves the council of four but is truely trying to free her master from his prison. Comes Balduran, returning to the streets of Baldur's Gate as a mind flayer secures his survival by joining the Knights of the Shield. Having a mind flayer is such an asset to the organization activities he rose through the ranks, enough to learn the secrets of the Knights of the Shield's leadership. Learning of the hidden lord, the emperor concludes the devil is a threat to his continued survival, ambushes Stelmane in her home, rakes her mind of information and placing her under a geas, compelling her against her true purpose and not act against Baldur's Gate and the emperor, installing himself as the new puppet master of the Knights of the Shield thwarting Garguath. Stelmane discovers she cannot act against the compulsions without damaging her position of power as well her body, so she complies biding her time. The emperor in his new position is even more isolated, more so as a renegade mind flayer aberration in surface city, Stelmane becomes the emperor's only source of social interaction. Over the next decade or so they operate the knights of the shield as partners without the influence of Garguath, Stelmane would come to respect the Emperor's mental acuity and knowledge, being his confidant in the business, but wouldn't hesitate to gut him in the name of Garguath if and when she manages to break free. But for the emperor, being the only source of socialization and one who knows his identity for well over a decade, she would been his only friend since Ansur.
Stelmane was the emperor's friend, or just one sided friend if you prefer and still consistent with the assertion the emperor never lied to you.
There's no such thing as a "one sided friend". Friendship by definition requires reciprocity, otherwise it is no friendship at all. Furthermore, even if you respect someone's abilities that doesn't make that person your friend. I can respect my worst enemy's qualities but that has absolutely no bearing on my relationship with them. Stelmane is more like a caged tiger whom the Emperor considers his pet despite the fact that it would likely try to kill him if not for the bars.
So yes, the Emperor is definitely lying by characterising this relationship the way he does.
Also what makes it "sick and degenerate" is not the mind control part per se. I don't see a big problem with mind controlling some villain and using them to e.g. subvert their evil organisation for a good purpose instead of just outright killing them. What makes it sick is that he abuses this arrangement and controls Stelmane to engage in certain social situations with him because he feels some kind of void due to being Mindflayer who has residual attachments to his past life as a human. He effectively makes her act out his fantasies. That is just deeply disturbed and depraved behaviour. Most people will ultimately view that is wrong to transgress certain parts of someone's personhood even if that person is "evil".
