I'll agree that it's a mental illness, but no more than being left handed or gay. Sure it's a deviation from the statical "norm" but who does it harm and what does it matter? Let people conceptualize themselves however they like. Lots of "born again Christians" out there who talk about their relationship with an imaginary friend.
What does it matter to you how anyone perceive themselves or the world around them? They still deserve respect. You're allowed to think whatever you want about others, but using what you perceive as illness as a reason to mock or belittle them then that's just active cruelty. In your A or B scenario, both of those situations are someone deserves respect and that you yourself don't need to concern yourself with. Who tf cares if they feel special? Good for them. If you wanna think them crazy, I mean... okay? Just don't be shitty to 'em.
Besides, if you really want to get in to the philosophy of it. Where exactly is the "you" in your body? We are all a collection of living cells that are controlled by a not yet entirely determined part of thr brain. Sure parts of the brain can be damaged and that causes personality changes, but where the "you" in you truly resides is hard to say. Sounds like a swarm to me.
Essentilism is a philosophy use without realizing, but it is also a inherently immposible to prove concept, and saying "X is absolutely and only X" really doesn't allow for the messiness that is the world, or the human experience. If they are happiest as a swarm. Well rock on!
When straight people have had centuries of being forced to conform into queer lifestyles out of religious, cultural or legal threat. Then they can have a flag.
It's not PRIDE to be proud of yourself, it's PRIDE as opposed to being ashamed of existing in public.