Calling it an illusion forces a sort of re-defining upon the word itself. Life is just a word that our language uses to identify a thing and although it somewhat vague in some senses, for the most part a child could point to an object and ask if it is life or not and you'll be able to provide a clear-cut answer.
You touched on this and perhaps lets just look at matter as matter - throw the concept of alive, dead, animate, inanimate, etc completely out the window. Rather, lets just say there is a molecular structure with characteristics of interest you wish to understand.
Viruses and prions are components of this molecular structure too as they directly interact with this molecular structure of interest.
Now, this "molecular structure" is a single entity - not the seperate individuals (such as people, butterflies, fish, etc) - as they are all confined to the boundaries of the planet of which they exist. The planet's environment also affects the nature and structure of this molecule, and vice versa too.
In this view, "life" could be defined as the entire planet and I wouldn't be inclined to say is an illusory perspective. It just depends on your definition of the word. :)
The molecular structure of life today is assuredly of vast difference compared to when it originated. It probably didn't even resemble any of the biochemical structures we are accustomed to identifying today.
Consider the events of a typical star for a moment. Initially its pieces are scattered and over time through gravitation they coalesce. These pieces are the simplest form of matter but eventually enough of these atoms gravitate together and something amazing occurs - they start bonding together to create more complex forms of matter. The process is self-sustaining and over time produces ever increasingly complex forms of matter.
Now imagine for a moment you aren't privvy to the natural processes involved in star formation or the dynamics occuring within stars throughout their lifetime. Even if you were to look at the materials and conditions existing within a middle-aged star do you think it would be fair to say that the knowledge gained from just observing the star's current condition would lack the insight into the process of fusion which gave rise to that condition?
What I am getting at here is that we can look at the current structure of life that exists today and break it down into its constituents but at some point there exists a "jump" in material characteristic that just cannot be revealed by this top-down scrutiny? Again, I'm falling back on the phenomena of fusion that occurs within a star and the inability to know that the process of fusion even exists as a character of matter unless it is observed.
Interestingly enough, we can see matter that exists in the form of "inanimate" as well as "animate", or, "living" vs. "non-living". The hangup I see within this post is only a simple matter of definition which is why I suggest to look at it simply from a perspective of behaviour the "stuff" you are describing exhibits. You cannot express your thought from both the observer and the object at the same time - seperate yourself from the object entirely.
In the end, "life" is easy to define. What is making it difficult for you is trying to define "life" from a "non-life" perspective. You are entangling the fact that you, yourself, ARE "life" with the need to present your definition of life from a "non-life" perspective. In turn, becoming confounded within yourself and expressing only that fact rather than clearly defining "life" itself, which I am sure everyone here could identify if a 6-year old were to point to it. :)
"Life" exists because the definition of life defines all of the elements that exist in the world today. i.e. Life is "x" and "x" is exists, so life exists. The things that fulfill the definition of "life" are here - by the very definition, "life" does exist.
Breaking it down any further than the simple definition doesn't mean you are further proving that life exists. It only means that you are further refining the definition of what the word "life" means.
It is laughable in the fact that one can let a word be their thought rather than let the thought be simply expressed as a word.
Life is just a word - how you define it may seem to be the question but I have the feeling it is really deeper than that (for you).
I get the impression that what you are questioning is whether or not your conscious mind is a concrete or abstract manifestation... that is how I interpret your question/statement. I think it is necessary to divide the concept of life and the concept of mind for any discussion, not just this one. They are not within comparable bounds to each other - like the "apples and oranges" adage.
Taking an additional step here based on your post, it may be questioned whether or not "life" inherently gives rise to mind (or awareness, consciousness, etc). This is a completely spicy, indulgent, and exciting topic to entertain. :) For sake of conversation, I'll presume this is your direction and pose:
The nature of living organisms is predicated by the structure of the DNA molecule. The very basic "common denominator" behaviour of DNA is rather simple in function - reproduce; continue on. This is true across any and all living organisms. I've intentionally thrown both the words "DNA" and "organism" about as if they are one in the same - they really ARE one in the same - people are their DNA just as well.
It can be postulated that our "minds" are fundamentally rooted in the soil of the DNA molecule's behaviour. The "mind" as we know it is a manifestation of the 204 billion atoms composing the 3 billion base pairs in a molecule that would stretch from here to the moon if so persuaded. When you think about it, our lives are completely and totally guided by the fundamental desire to stay alive and to reproduce. We all want to live and we all want to get laid. Freud wasn't too far off, really. He just wasn't privvy to the molecular mechanisms of life.
In a way, you are almost asking if it is possible for a molecular structure to have a mind, or awareness, or a "mental state". The real answer (to each his own) lay in whether or not you believe the mind is an entity totally seperate to the matter our bodies are composed of or if you believe the mind is an effect manifesting from chemical/material interaction.
In this respect, the only thing that is real is that of which you beleive it real, so to each his own. :)