As a player in that game, I'll say there were some good illusions going around. In the session previous the group used an illusion of a large spider to hide under and plan our next move more or less in full view of the enemy, and later we used one of the higher level illusions (sight, sound, etc) to create a duplicate of my half-orc fighter/barbarian to charge into a room of aranae to suck up all their readied actions. Pretty textbook examples of what illusions are good for, but still fun.
Illusions are one of the harder spell groups to adjudicate on the fly because while MU's can cast fireballs and lightning bolts creatively, they are what they are. But Illusions can be anything (within the parameters of the spell), and that has a lot of potential. There are limits built into them, but a lot of it is buried in the text and that can be easy to miss in the heat of battle.
From a GM perspective, the best way to fool characters with an illusion is to fool the players; don't treat it any differently than you would a real creature, roll their Will Saves in secret, that sort of thing. I find that's pretty fair, as long as you keep the spell within its limitations (silent images aren't described as roaring dragons) and you give the pc's their fair shake at disbelieving when interacting with the illusion, they tend to treat the illusionary creature as a real one. (I still fondly recall the game where the party had fought a lot of illusions, and thought a conjured Huge Fiendish Constrictor was illusionary. They just watched as the party fighter was slowly strangled almost to death. "Come on, dude, its an illusion. Just disbelieve it.")
But the players can't actually fool the GM with an illusion, since the ruse is pretty much up when the player says "I cast Silent Image." So the GM has to come up with a way to be fair and within the capabilities of the npcs so as not to nerf them or the spell. That can be a hard line to walk. The players have it easy, if they never make their secret Will Save and if they never see the illusion do something impossible, then they think its a real creature and treat it accordingly. Even if they completely ignore it, they think they're ignoring a real creature. (I've done that. I was playing a Dodge/Mobility built mage who would run through threatened areas all the time. Fighting a devil one time I was provoking like mad, and it turned out not to matter since it was an illusion. But it was funny because I never got the Will Save because I never paid any attention to it-- though I was tipped off after the 5th AoO it didn't take.)
My favorite quote regarding illusions comes from a 2e game, where a friend of mine and kestrel's was playing a gnome. For those of you who may not remember, in 2e, gnomes could only be illusionists. So when his gnome would run around casting fireballs and lightning bolts, anybody who knew anything about magic, gnomes or illusions pretty much knew the score. This lead to my all-time favorite Illusionist quote. After a long battle against derro or something that just was not buying is fake spells, the player of the illusionist yells out:
Illusions suck! They're NOT REAL!
(I thought it was pretty funny.)