The object world ; Dualistic delusion?
Surely the delusion is that there are phenomena "out there" (sense objects) to be perceived and engaged, distinct from the perceiver. Using a dualistic understanding of objects being only separate, conditioned responses occur.
Although there are different understandings of this notion of separateness around in different Buddhist schools, my understanding would be that the problem lies not in our perception of objects as separate, but rather in our perception of them as extensions or indicators of self (Lakshanas). It is the extra bit we add to perception of the object that creates the delusional worlds and the self. If we could really perceive the object as "other" we would be viewing them cleanly. This is true emptiness: to see things as they are without the self element. The term "dualistic" which is much used in the West is very slippery. People use it in all sorts of ways, most of which do not relate to original Buddhist doctrine at all. I would see it as linking to the concept of vijnana - which I would see as the self-centred mentality. The implication of vijnana is that we divide the world into "me" and "not me", making ourselves a special case. In this understanding I would see the implication to be that we should indeed see the objects in te world as separate - more separate - and let go of our habit of appropriating them to our self-project.