Because Baobao, no matter how you put it, is an incarnation of an Outer God, an existence almost on the same level as The Dark One, she was unexpectedly also present in the Illusion Realm.
The name, image, and voice of an Ancient Overlord are all polluting, whatever is spoken must be known, so if Baobao appeared in the Illusion Realm, then the real world's Baobao would most likely also be aware of this matter.
She did not punish the false image here, which means either she lacked the power to overcome The Dark One's defenses, or she didn't care.
Lu Ban had considered the latter possibility as well.
Although Baobao seemed to have a good relationship with him, and often helped Lu Ban, essentially she was merely experiencing the ultimate human emotions through Lu Ban's experiences. If Lu Ban lived in this world and could provide Baobao with those human emotions, she might really not take the risk to interfere with The Dark One's doings.