I agree. That school felt a bit... lacking. Especially since when you get to a higher level and the enemy scales all those "Make characters X levels and below do Y" spells become useless
The perks are designed to overcome those limitations.
For example, the Master level "Hysteria" spells causes level 25 creatures/people to attack anyone nearby for 60 seconds. The "Kindred Mage" perk increases the level limit of all illusion spells by 10. The "Rage" perk increases the effects of fury spells to 12 levels higher than that spells level limit. And, Dual Casting Illusion spells doubles the level the spells effect. By this point, the level your Hysteria spell would effect is as follows -
25(Base Spell) +10(Kindred Mage) + 12(Rage) = 47.
47 x 2 (Dual Casting) = 94. I don't think enemies get that high, and if they do they're bosses (which makes sense that you cannot affect them with your illusion spells.)
As for the OP:
Illusion deals all with manipulation of the mind. If an enemy chooses to attack you, and you use your illusion spell to calm them down, you just manipulated their mind by making them believe the illusion that you are no longer a threat. I believe, if you invest in Illusion magic, it can really be a benefit to any mage's lineup. Turning your enemies against one another, calming those who get near, scaring away those who are better dealt with after their allies are dispatched, and invigorating your allies are all strategies and uses for illusion magic. When you get Master of the Mind, and your illusion spells work on Automatons, Daedra, and Undead, the damage you can do is stunning. Illusion is a tool to be used and weaved within the other schools of magic, and it's something I am sure to continue investing in.
Could they have done more? Of course. They could have technically done more with everything in the game. But at it's current state, I am thoroughly enjoying it.