1. Would this take away the illusion? I think it'll just inform people of what they already know; it's not 100% real. The indicator will only serve to reduce the anxiety and depression in some folks by reminding them that what you say isn't 100% real.
I don't think Instagram wasn't to be a service of unhappiness and illusion. That would destroy their brand and I honestly don't believe the people working at Meta have such ill intentions. I think they do take pride in having a large number of users and a large number of people who are generally speaking, happy to use the service, but don't fully realize how deeply it can impact impressionable folks.
All that being said, a lot of people are starting to have negative emotions about Meta and similar companies because of a) their success b) their social impact and c) along with both of these some pretty deep negative impacts that I believe Zuck and the many workers that never intended. Basically, it's a negative by product.
This is all an opinion and I could be full of shit.