I don't think having illiterate PCs would add much to the game; assuming any PC is literate it really isn't any big obstacle but could slow down the game.
For the same reason I don't go out of my way to make language barriers to difficult; if the PCs are talking to someone in whatever language, as long as any of the PCs speak that language I don't make it a big obstacle (some DMs like to send the "non-understanding" PCs out of the room or something...I just assume the PC that understands interprets for the others).
In my game (Arcana Unearthed, set in the Diamond Throne) there is a fairly high literacy rate, but it depends on race (this is for NPCs; PCs are all assumed literate unless they want otherwise for roleplaying reasons). The "ruling race" of giants and their sibbecai are highly literate, at least in Giantish. The Verrik race is virtually 100% literate. Faen are about 50% literate as they have a strong oral tradition instead of writing, and Litorians are often illiterate and the Litorian written language is rare; literate litorians are more likely to write in giant or common than their own language, or at least use the Giantish alphabet. Mojh are 110% literate
Humans are about 50% literate overall. Yes, their language is "Common" but it is called that not because everyone speaks it but because it is the language of "the Common Folk" (scholars call it "New Devanian"); some human separatists use "Common" as a political term (we are the "real people" while the giants think they are above us...).
The official language of the Diamond Throne kingdom is Giant, but generally public proclamations, etc. are in Giant and Common, with the Giantish text often twice as large as the Common (the excuse being, of course, that Giants are larger so need larger letters, but this, of course, riles up the separatists).
In the Warhammer Fantasy RPG, however, literacy or lack thereof is more important; I've seen games in which
none of the players are literate. Which can be funny since many adventures rely on the "you find a mysterious note" device.