I do interviews and phone screens for my company.
If you gave me this response, I would likely respond, "Yes, of course. But we can and frequently do hire more than one person. I assume, however, that you can only accept one offer." Then, unless we'd had an exceptionally good conversation otherwise or an apology followed (without prompting), I'd note that you suddenly became a hostile smart-ass and advise the interviewers to watch for attitude problems. That is assuming I recommended moving forward at all.
I usually only ask this question in phone screens, because I expect our recruiters to ask about your job hunt status on interview day. My reason and our recruiters' reason for asking this question is not to gain some advantage over you or see if we can low-ball you. That would be a self-defeating move, since if we hire you, we'd like you to stay. What I want to know is if we need to fast-track you. That might sound like a good thing, but it only is if you're an exceptional candidate. If we're on the fence and don't have time to consider you carefully, we'll probably fall back on turning you down quickly so we're not holding you up.
That said, if you have an offer in hand and are willing to share some information about it -- even just that it's "really good" -- we may consider that in our offer. We still won't low-ball you, but it may tell us that you're going to take some above-and-beyond to get. You may very well be out of our price range, so we may follow up to learn more about the work you want to be doing, since we might at least be able to offer you a more interesting project than you can get elsewhere. If you're really something rare and special, it might even give us the slap across the face we needed to realize that we should be willing to pay you more than usual (e.g. you'll bring in more business).
We expect you to be interviewing elsewhere. Telling us you are at worst will not matter, and usually will only work to your benefit. This is also a good opportunity to tell us that you're only interviewing with us because we gave a good sales pitch, but you're in no hurry to leave your current position unless the job and offer are right.