Hmm... I think honesty is generally a good policy--I think the adcoms would recognize insincere praise/gushing about their school. Personally, I do not have a first choice now, which I think is a pretty acceptable answer, should it come up. If I was so lucky as to get into multiple schools, I'd take into account location, cost/financial aid, future goals, ect.
If your first choice is another school, I'd try to spin in a financial/practicality direction--"While I really love this school, the instate tution at _______ make that my top choice. I applied as OOS here anyway because I thought/liked/was interested in ______ here."
I think that the most important thing is to apply only to schools you would be eager/thrilled to attend.
Have people encountered this question during interviews?