I wouldn't say that "authority" is an illusion, but it's absolutely true that (except for a small amount) it doesn't come from your position in the hierarchy. It comes from how you act and what you do.
For the record, I wouldn't say as a single declarative that "authority is an illusion"...I suggested that one accepts that it is. There is a preponderance of evidence demonstrating that we are quite capable of accepting things that aren't true. I'm merely proposing that doing so gives you another perspective on the source of your authority.
I've written a bit about this here, calling it "credibility capital": http://jasonlefkowitz.net/2003/03/where_leaders_f_1/