Do you have many memories of that time, around 3 to 5, and remember what your cognitive processes were?

When the child is afraid of the monster in the dark, they are not literally visually hallucinating a beast in the dark; they are worried that there could be a beast in the dark, and they are not sure that there is due to a lack of sensory information confirming a lack of the monster. They are not being hyper precise because they are 3, so they say "there is a monster under my bed"! Children have instincts to be afraid of the dark.

Similarly with imaginary friends and play, it's an instinct to practice through smaller stakes simulations. When they are emotionally attached to their imaginary friends, it's much like they are emotionally attached to their security blanket. They know that the "friend" is not perceptible.

It's much like the projected anxieties of adults or teenagers, who are worried that everyone thinks they are super lame and thus act like people do, because on the balance of no information, they choose the "safer path".

That is pretty different than the hallucinations of LLMs IMO.