For me, illusion implies sensation, chicanery, wonder.
I don't know how high-magic your campaign is, but in my campaign it would be hard for illusions to be so commonplace that everyone wears sumptuous dream-of-gold robes and eats gruel-a-la-rêverie; there aren't enough wizards and there aren't enough spell slots. Still, it's an available commodity and you'll see 'em, just... not below a wealthy lifestyle.
Too, I don't see it being a brightly-lit floating-globe kind of place; that's Evocation
I'd invent a relatively small number of "common magic item" magic illusion materials and items, and have those form the basis of the illusions in the city. I'd propose:
Dream-of-Gold: A cloth which reflects light in a constantly shifting color, cut and pattern. A skilled onlooker can cause specific patterns with some concentration; otherwise, they're basically combination lava-lamps and mood-rings, though they can appear sumptuous one moment and drab the next ("glamer" magic, in 3e parlance).
Reverie Spice: A powder which causes any food or drink made with it to taste exactly like the cooking of each consumer's grandparent. It's uncanny. If no grandparent of the consumer was a good chef, or if the consumer never tasted their cooking, it has no effect: it's driven by memory, not by false sensation ("phantasm").
Utile Taper: A swift-burning candle which a skilled user may use to create a mundane object costing up to 50gp, weighing up to 100lbs, fitting within a 5x5x5 foot cube. They do this by lighting the taper, creating a shadow puppet, and then peeling the object from its own shadow. This requires a bit of skill (use the Stone Shape spell for guidance), but is otherwise relatively straightforward. The created object lasts until sunrise. ("shadow" spell)
Usher's Badge: A strictly controlled object, created-for and used-by city representatives only. I guess this one is probably rare or rarer. This small badge looks like a completely convincing medal, badge, or other hand-sized object to any onlooker. It will look like the appropriate sort of identifying object to each individual onlooker. The more suspicious they are, the more authentic it appears. It might be slightly psychic. ("pattern")
So for me: it isn't that everything is illusory, but instead that everything relies on intense sensations that evoke memories; that the style of communication is intensely emotive, allusive and evasive rather than intellectual, plain or blunt; that public celebrations are marked by brief, intense, and spectacular displays; and that the plan of the city as a whole is confusing and labyrinthine architecture.
There _are_ ordinary illusions, of course: most citizens will find it difficult to enter the sprawling civic quarter named Backstage, because it requires walking through unmarked walls at the end of blind alleys, or down tunnels stinking of refuse. This is by design; the Ushers use these unobtrusive entrances to ensure the correct functioning of the city.
Spicemarket is the most openly opulent portion of the city, selling spices, drugs, perfumes, and magical substances. Due to the intensely valuable and fragile nature of its wealth, it's filled with small stalls rather than wide open spaces. These stalls form an open-plan maze in 3-dimensions, the smell of a lower-level's kebab stand mingling with the purveyor of obscure mushrooms on this level, with a nearby ladder permitting access to an upper story's seller of dream-of-gold or perfumes.
The market guards walk around on the top of stalls, and can swiftly rattle out grates, draw out curtains concealing needles, close trapdoors, lift planking creating a drawbridge, and generally convert the market into a deathtrap. This happens due to false alarm every so often and adds to the chaotic swirl of the place.
The Figment Garden is another quarter of the city. The city is hidden by illusory forests, beneath hills that aren't real, on paths blocked by boulders which aren't, over bridges under which a troll is suspected but never seen. These illusions are placed by the finest wizards, renewed at regular intervals, and there is fierce competition to be given the honor of crafting them. Those who are still in training or who stockpile illusions to be installed at a later date or who are working on new
kinds of illusion craft them here. In order to ensure that gnomish armies won't become confused by the illusions at a later date, the Garden is also a military barracks, and the sale of weapons and armor happens here.
Inns and taverns are uncommon-to-nonexistent: the city is secluded and hidden, so why would they cater to travelers?
But a traveler will often find themselves welcomed to a Salon for their stay. These are dimly-lit (gnomes have darkvision! Illusion is about hiding things!) but clean entertaining spaces owned by a wealthy family and open to their neighbors for discussion, eating, drinking, and socialization. Bringing a gift is expected, and the circulating conversation, smells and song will quickly make this unusual form of cohabitation a favorite of their visitors. Getting anything of importance done likely requires visiting "up", using a salon to become invited to the next salon, and so on until one is tête-à-tête with an important person for discussion and requests.
Being well-lit and thus easily observed in such a place is a mark of prestige.
