I agree with Ringo—encourage them in the areas where they are especially strong.
Don’t let your own biases and fears influence them. For instance, my sister and I both showed a noticable amount of artistic potential at a very young age (my kindergarten teacher noticed it, and every teacher from then on). My mom, fearing that my sister and I would starve as artists, did everything she could to discourage us from being artistic.
Don’t do that. (I didn’t think you would, but take care to not even do a subtle variation of what my mom did. It sucks, big time. By the way, my sister and I never did give up art, but it wasn’t because my mom’s lack of trying.)
Don’t give your kid false hope, though. A friend of mine is tone deaf, and yet no one wants to tell her she is tone deaf. (Except for me, I believe. I told her once when she was a young, and haven’t brought it up since then, because she tends to make scenes.) She really believes she has a “beautiful voice”, because some pople have flattered her and allowed her to continue in her delusion. I believe anyone who tells her this is cruel. Sooner or later some extremely blunt person will let her have it, and she will be devastated.
While I think that it’s cruel to allow someone to believe in a pathetic delusion, I don’t think it’s right to discourage them outright. Your assessment of their ability may be wrong, after all. (While I am convinced that my “singer” friend is tone deaf, I’d never tell her to give up singing. I have merely told her that she is tone deaf, in my opinion. It’s up to her to decide what to do with that information.)
Remember that some talents and aptitudes are “buried” inside a person, and can be brought out of them if they have enough patience and dedication. For instance, I’ve seen people with only a little artistic talent who have gone on to do wonderful work—they just wouldn’t give up. And other people with more innate talent go nowhere, because they were lazy and unmotivated.
So I guess I’m trying to say, you never know. I would be more apt to encourage a kid with “average” talent if they seemed really passionate about it, but if they are the kind that flits from one interest to the next, well, that’s different. I wouldn’t encourage someone to pursue something when they show no real talent in it, AND they tend to have a short attention span anyway.