It's not so much that I take Byakuren's dream self to actually represent her. It's definitely and clearly exaggerated. But with characters like Mamizou or Miko they make it very clear upfront what you're getting. No, Mamizou isn't trying to take over Japan. But she's definitely a very ambitious person. This is just the traits that we already see taken to the next level.
On the flip side, Byakuren very much tries to hide this side of herself. Deep down she's still the woman who's terrified of death, who uses magic to make herself look pretty, and uses her disciples so that she doesn't have to do chores. While Miko's dream self is an exaggeration of her upfront traits, Byakuren's internal thoughts contradict the way she tries to present herself. It makes her seem hypocritical, she's pretending to be something she's not.
As Drake said, this has always been the case with her. It's that, for me, AoCF really hammered it home. And it's not like I think she's a horrible person or anything. It's just that the reason I've always liked her so much is because I've always seen her as an incredibly selfless, "paragon of virtue", youkai Jesus type character. While it was my mistake in the first place for not reading the signs, now that I understand how she is she's just no longer as awesome as I once thought. It's kind of like learning that santa claus is just your dad in a costume. There's really no one to hate or blame, you're not going to hold it against your dad, but you're not going to listen for reigndeer or leave out cookies anymore.