One of my acquaintances here in Hollywood used to work for TMZ. He actually thought TMZ was full of sh*t and too sensationalist. He now works for one of the “top” newspaper tabloids and he has the connections in DC and WH. He explained that no one takes TMZ seriously and that TMZ still contacts him for the scoop.
Reporting things and breaking stories isn't really their specialty, so far as I can see.
Still, it doesn't seem like they make up much (apart from when they want to make jokes).