I'm just going to give you my maybe unique but I would hope not view on the concept of masagatsu agatsu. True victory over self.
It's based on illusion. The illusion of an enemy, the illusion of an opponent etc. We hold these beliefs and thus destroy ourselves and are thus caught up in the illusion.
I have said before that there is no against in Aikido.
When a person understands the depth of that comment then I believe they will understand masakatsu agatsu, theirself and aikido.
I also understand Masakatsu Agatsu to mean 'the true victory is self victory' and also agree with your illusion analogy. Also like Mikel i have this tattooed on my arm, such i believe is the importance of these words to my training in life.