It's hard to say. I think with some things he knew he was lying, and with others he was "sincere" as explained below.
First, an example. From
http://en.wikipedia.org/wiki/Clear_(Scientology):
In August 1950, amidst the success of Dianetics, Hubbard held a demonstration in Los Angeles' Shrine Auditorium where he presented a young woman called Sonya Bianca (a pseudonym) to a large audience including many reporters and photographers as 'the world's first Clear.' However, despite Hubbard's claim that she had "full and perfect recall of every moment of her life", Bianca proved unable to answer questions from the audience testing her memory and analytical abilities, including the question of the color of Hubbard's tie.
How on Earth did Hubbard get himself into this position of making an utter fool of himself? How did he not know that her capabilities would be so far below what he had PR'd them to be?
I think it worked like this. Hubbard was known to have used "affirmation tech," witness the infamous
Admissions, courtesy of Gerry Armstrong. I won't quote the usual sexual stuff, but try this for size:
You can do automatic writing whenever you wish. You do not care what comes out on the paper when your Guardian dictates. You can hear her easily and when you want her to write or talk dictation you have only to consciously will it and the result is written or spoken by yourself without any intrusions of your own thought. It is entirely automatic. It does not in the least affect or reduce your spiritual will. You may or may not believe what she dictates. That is part of your conscious will and judgment.
Anyway, "affirmation tech" is basically saying to yourself, repetitively, over an extended period of time, in whatever manner makes a deep impression on you, how you *want life to be*, not how it is now. The purpose is that the intention takes root in your subconscious/superconscious (or whatever), and has the desired effect in the real world.
So, with this first Clear person, the woman he introduced at the Shrine, maybe he had been "affirmation teching" all the time, i.e., "She is Clear. She has perfect recall. On stage she will perform perfectly. The world will see how brilliant I am. Young girls will fling their panties at my feet." Etc etc. Over and over, day after day, week after week, month after month. And he affirmed himself into the ground, so much so that "it worked," i.e. he believed it thoroughly!
See what I mean about him being "sincere"?
(This is all conjecture, of course.)
Paul