HIPPOGRIFF, n. An animal (now extinct) which was half horse and half griffin. The griffin was itself a compound creature, half lion and half eagle. The hippogriff was actually, therefore, a one-quarter eagle, which is two dollars and fifty cents in gold. The study of zoology is full of surprises. -- Ambrose Bierce, "The Devil's Dictionary"
For the record, I might be speaking out of ignorance but I'm not sure I entirely agree. I think self-delusion is the easiest trap to fall into for one who believes they know themselves perfectly. We're all guilty of that to some extent. Though, true, refusing to acknowledge your failings is truly reprehensible.
Dissociative disorders as defined by DSM-IV have some of what is being mentioned here, including self delusion and and altering perceptions of one's consciousness and view of realty. And yes, it can be the 'bad', as it is not intentional.