I know what you've told us and it all pretty much speaks for itself. Anyone who denies obvious truths and the experiences of others that support those truths is lying to themselves for a reason. People who lie do so to protect themselves from being found out about something, even if the entire nieghborhood knows they're guilty, they keep right on lying and telling their tall tales... it helps themselves maintain dignity and self-respect even if everyone else sees right through it.

A weird mental situation but hardly unique.