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How to Answer Interview Questions About Your Weird Employer

Dear Evil HR Lady,
I current work for a very small biotechnology company (two full time employees and a co-op student). Now, in addition to being small, it's an unconventional company. It has formally been around for about six years. We work in certain areas of scientific research, but we have no full time PhD scientists on staff and have never published a scientific paper. We have no clients or customers. We have no direct revenues or income streams. The co-op student is here mainly on gov't grants and funding programs. Basically, most of the work we do revolves around the ideas of the president and CEO of the company, which may or may not be valid.
The CEO is a micro-manager who is also has very little training in science, engineering or computer programming, which are areas important to what we do here. Most of our business decisions come from his (uninformed) opinion. It's an awful work environment, and I'm actively looking for a new job. However, some potential employers want to know what I've been working on in the role I've been doing. They want specifics: what the projects were, how were they funded, what tools did we use, etc. Now, in my case, I know that some of the tools and projects we've worked on are garbage, to be blunt, but I don't want to lie to a possible employer. I also don't want to dodge the question since that may make me look bad. I have been working hard but due to the particular situation, getting anything resume-worthy has been challenging. Do you have any advice for how to answer awkward questions when you've been working for lemon of a company.
I will start this question by admitting that I am not a scientist so I may not understand the interviewing environment. But what about telling the truth?

I'm not suggesting you walk into an interview and say, "Boy, the CEO at my current company is an incompetent whack job!" But, when they ask about projects and tools tell them the truth. But then tell them how you would have made it better. For instance:

Interviewer: Tell me what tools you have been using.

You: We've been using X, Y, and Z in our study of Alpha, Beta, and Gamma. However, I believe it would have been better to use Q in place of X because of blah, blah, blah and blah, blah, blah. This would have reduced costs and increased the probability of finding blah, blah, blah. Y is an excellent tool when used in the study of Gamma, but I found it to be less than effective in the study of Alpha. In that case I would have preferred...

The idea here is to demonstrate your abilities, because that is what they are really looking at. It's true that people tend to prefer hiring people who already have experience with the tools they'll need at the new job, but the reality is (if the tools have been really bad) you don't have that. So, you'll have to work with what you've got.

If the funding sources are weird, then they're weird and there's nothing you can do about that. Unless it was your job to obtain the funding, it's probably more of a curiosity question than anything else. Again, be honest with it.

I've found that the world is quite small within industries. It's likely that potential future employers (especially if in the same town and same field) know all about your boss and will likely laugh when you describe what goes on in that lab.

Good luck with your job search.

Photo by Argonne National Laboratories, Flickr cc 2.0 (not the weird employer talked about above)