Taylor and Brown defend their position that


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...self-aggrandizing self-perceptions, an illusion of control, and unrealistic optimism are widespread in normal human thought ... ... maintain that these "illusions" foster the criteria normally associated with mental health...
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and conclude that

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...work on illusions and mental health has gone beyond the simple questions of "Do illusions exist and are they associated with mental health?" The questions we should be asking now are, "When are positive illusions most in evidence?", "Do they ever compromise mental health, and if so, when?", "Are there conditions when they damp down or disappear altogether?", and "Do such conditions address the paradox of how people can hold positive illusions about themselves, their world, and their future while still coping successfully with an environment that would seem to demand accurate appreciation of its feedback?" On these questions, recent research suggests that progress is being made.
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Interesting questions all; I look forward to unearthing more findings.