Firstly, I say "mentally ill" in the kindest way possible, not derisory. The fact is that a man who thinks he's a woman has a mental problem. Every cell in a male to female transitioner is male.
Secondly, there is harm in propagating stupid made up pronouns as Canada has. You don't think governments and corporations will abuse it when people "change" their official gender? Where's my pension gone, my social security? Well sorry ma'am, that all reset as the records show you have been on our system for 6 months, not 30 years..and so on. Normalising made up gender pronouns is dangerous and a bad precedent, in any setting.
I think these are separate issues. Wanting to be addressed using a different pronoun is merely a symptom of the fact that someone is experiencing gender dysphoria. And gender dysphoria will exist whether we allow individuals to use different pronouns or not. So, at the governmental level it's a question of whether we permit individuals to change their gender and what conditions we impose on this. And currently where it is allowed, as far I am aware it doesn't "reset" their existing records.
But at the individual level, if we believe in free speech then we should allow people to call each other whatever they want. And if a group of people want to get together and want to create some crazy new pronouns we should allow that too.
And finally in an RPG, we have to decide what kinds of characters we want people to role play as. And if in society, there is a group of people that experiences gender dysphoria and gives themselves some new pronouns as a result, I don't see why we shouldn't be able to role play as a member of that group. Of course, you will say that if we in any way use the language of that group we "normalise" it. But surely all we are normalising is the designation they use to refer to themselves, in same way that me saying call me Bill rather than William, normalises the use of Bill as a shortened form of William.
This is in the context of a game series that already allows you to play as a character considered clinically insane, with dialogue to match, and as a "monster" that is forced to navigate via the sewers, or risk scaring everyone else away.