I think the notion of illusion, here, is not something that does not exist, it is something that is wholly other than it seems. As you note, if it did not exist, it would not be there to label.
Dennet has no problem with the idea that you think, or that you are, or that it is necessary to do the latter in order to do the former. But he thinks we are badly served by viewing ourselves (and other animals) in terms of sequentially processing machines like those that we build, which principally process language by running it through a centralized nexus or a small number of highly general processors. He contends that the biology just does not support it, in terms of the sequencing, in terms of the generality of the processors, or in terms of the centralization of any part of it.
The fact that we express our experience of consciousness in a way that is highly artificial does not make it any less real. Explaining it surely shouldn't make it go away. Explaining speciation did not make speciation go away. It did replace a non-explanation with an explanation. Hopefully we can do the same thing with the stream of thought. Unlike divine design, consciousness will survive being demystified.
The notion of a sequential stream of thought is one part of the problem, and it is that notion that he is attacking when he says "consciousness is an illusion". So he proposes a metaphor for thinking that dismisses the three aspects of serialization, general processing and centralization, but presents the same surface appearance. He speaks in terms of 'multiple drafts'.
Dennett's 'multiple drafts' model of human processing is much like the psychoanalytical model. The brain is a parallel process with disconnected entities making calls based on specialized subsets of information extracted asynchronously from different aspects of the available data. Most of these processes use heuristics less precise than actual logic to make their determinations, so they conflict and compete.
The feeling that it is a coordinated whole is constructed as it is composed for memory, because we have specialized our memory socially to record stories, and not raw data. This is what is meant by a 'draft' -- it is a possible story competing to take up space in memory. As data stabilizes, it is edited. And edits continue even after it is transcribed.
So what does the 'drafting' process do to the notion of a quale?
Well, each of the competing processes has treated the same stimulus that we would ultimately attribute the quale in a slightly different way. They don't agree on the quale. Without consent from the full consciousness, does it exist? And the composing process does not compose a single unified version of the experience unless it is relevant to some aspect of a storyline that can be expected to verify the experience in a future reference. So it creates only the memory of the quale, and then only if it predicts that it might matter. At the point where agreement about the actual artifact is stable enough to record, it is no longer currently being experienced, it is a memory. At that point, was there any original?
So there are not quale, there are memories of quale, but those are not quale, especially since they begin changing almost immediately so that related events can increase in consistency of recall over time.
That means, as you deduce, that quale are just part of the illusion of unity. They exist, in some sense, or we could not remember them. But you cannot pin one down in the form we would expect it to have given how we will experience it in memory.
Consciousness as a single storyline that is deterministically composed before or at the time it is experienced is an illusion we experience because whenever we experience a previous time, including the time immediately before the present, we are handed a storyline that is temporarily frozen in a state that makes it appear consistent with our logic. But it is only one among many actually present in memory, and it is currently under revision.