Is Olivia's method of dealing with Orsino's love cruel or just honest?

I think it's honest. It's better that she told him right away that she didn't like him, rather than leading him on then ultimately breaking his heart. If she had let him believe that she liked him then it would've only made him more heart broken when he found out that she didn't. Sometimes love is cruel and there's nothing we can do about it. Olivia couldn't force herself to love Orsino just as much as Orsino couldn't get over Olivia.