What is a social strategy I can use to respond to "How's your PhD going?"

"It's going well, last week I made some good progress on X. How're things with you?"

The vast majority of people are just asking to be polite. If they're actually curious for specifics, they'll follow up with a more specific question. I personally like to have some kind of a cute story about my research because nobody has any idea what pure math people actually do. (I draw fractals for a living, so I have some pictures on my phone to show around.)

EDIT: Some of the comments bring up relevant points about cultural differences. If the local culture is one in which asking out of politeness is frowned upon (ie German @O. R. Mapper, or grad students @JiK), I think it would be still best to start an answer of the above form. This allows people to either gracefully exit or pursue a more in depth description according to their own interest and cultural mores.

Use it as a chance to practice your "lay person" elevator research pitch. The more you practice it the better you get. "I started working on ... here is why it is significant ..." Don't answer with how your research is going, talk about your research. Presumably you are interested in it. Convey your excitement. Think about it from the other person's point of view. Would you rather hear "great, how are things with you", or would you rather learn something new.

If your elevator pitch isn't very good yet, then forcing yourself to do this will make it better. If your elevator pitch is in fact good, then they will be way happier hearing it than "great how about you." Either way someone benefits from hearing the elevator pitch.

Unless the person really has an idea of what a PhD requires and some background knowledge about what you are doing, I agree with the other answers, it's nothing more than an "How are you?".

If you are bothered by the question, I'd highly recommend PhD comics on the topic, e.g., here, here, and here. You're not alone.

For practical purposes, a canned answer like: "It's research, it has its ups or downs." usually works well.