Yes, the illusory progress is one of the big draws of leveling games. It's also why I don't consider Puzzle Pirates a leveling game, because while its got measures of your skills that go up as you get better, there's no fixed upward progress on the skill-based ones. Your ranking can go up or down, and only goes up if you play the game well. There is fixed upward progress on the play-based ones, but no one cares about them and they don't affect much of anything.

The Foofers link was interesting. While I think the "WoW is better than watching Gilligan's Island" comparison is fair, I wouldn't say that WoW is better than, say, watching Schindler's List. Not all TV is a time-sink.