Ok, you had two questions in one, so I could have answered no or yes on this one. I picked no because children are going to be children. Depending on how old the child is, their brain growth will eventually lead the child to know the difference between fantasy and reality, especially when they are playing. I remember as a child that my brother and I pretended we were running away from a castle guarded by a dragon and we couldn't touch the floor because there was fiery lava. My parents never told us not to play it because eventually I outgrew and knew that it was all fantasy play. Parents should let their children keep being creative in their own way. As I said above, the brain development of a child are in stages and they will eventually be able to know the difference between reality and fantasy. Now, there are exceptions. My brother is past the Asberger's stage and even though he is in his early teens, he has the mind of an 8 year old. He still loves playing with action figures and dressing up as pirates and such. No one ever tells him he cannot play these things because it isn't "real". He does know the difference between fantasy and reality, but that doesn't stop him from having fun.
One thing that could be detrimental would be if a child/adolescent becomes so enamoured with the fantasy world through media that they would rather stay in a fantasy rather than face reality. There is a fine line and parents should be aware of that line. But by no means, do not squander a child's creative imagination. Its very refreshing to see children be so imaginative as an adult. There is not enough time to be a child, so let them be until they become older.