Yes, that's the same thing I was referring to. Talking shit (with no modifier) is, in my experience, an uncommon phrase to use in a sentence; the only time I can recall hearing it is when person1 is telling person2 that person3 was talking shit about them. In that situation, the "about you" part is implied, and you can leave it off. "Don't worry about it man, he's just talking shit." That implies person1 is saying person3 said something negative about person2.
Now, what I would be doing in a bar is "shooting the shit". This means you're just telling bullshit stories (wild, made up, inaccurate, designed purely for entertainment). I caught a 30" bluegill is bullshit, and I would only say that when I'm in a bar shooting the shit.