I’d argue if an illusion is indistinguishable from the real thing, then it stops being an illusion.
It’s a mapping, yes, but a very large, complex mapping. It’s clear LLMs do understand some things and can reason. How that’s done we don’t know, it’s emergent. It’s not like you can pin it down to a specific mapping.
If an observer cannot distinguish between an illusion and reality, it becomes their reality, not necessarily the reality or those of others who can.
It becomes a problem when sufficient number of people suffer from this, or those in important decision making places.