Joyce was Irish, and while I am not sure of his political affiliations, I am fairly confident that he was never a supporter of the English rule of Ireland, particularly after the 1916 uprising. (This letter was written in 1928, seven years after the end of the Irish revolution and 5 after the end of the ensuing civil war.) To say that he was raised with "political suppression" is a reference to the frequently very heavy handed treatment of the Irish by the English. On the other hand, as far as I can tell he was never politically active, and may never have returned to Ireland after the revolution or even the 1916 uprising.
Wells was a socialist, a pacifist, politically active, and a firm believer in the perfectibility of humanity, though peaceful and scientific means. A reference to "political responsibility" by him likely indicates his preference for things like voting and writing (A cute Chesterton quote: "Mr Wells is a born storyteller who has sold his birthright for a pot of message") over things like shooting.
I'd say the use of "delusion" in both cases is a bit of ironic self-derision. He appears to be ascribing to Joyce the belief that the existing structure (of novels, in this case) must be torn down and thrown away for progress to be made, while his own belief is that everything can be improved incrementally, even novels. But, by using "delusion" he implies that both are probably incorrect.
To my mind, Wells is describing in detail why he does not care for Finnegans Wake or Ulysses, which is perfectly fine as it's his opinion and all that. He's also offering a fair and reasonably valid criticism of Finnegans Wake and Ulysses:
"Now with regard to this literary experiment of yours. It’s a considerable thing because you are a very considerable man and you have in your crowded composition a mighty genius for expression which has escaped discipline. But I don’t think it gets anywhere. You have turned your back on common men—on their elementary needs and their restricted time and intelligence, and you have elaborated. What is the result? Vast riddles. Your last two works have been more amusing and exciting to write than they will ever be to read. Take me as a typical common reader. Do I get much pleasure from this work? No. Do I feel I am getting something new and illuminating as I do when I read Anrep’s dreadful translation of Pavlov’s badly written book on Conditioned Reflexes? No. So I ask: Who the hell is this Joyce who demands so many waking hours of the few thousand I have still to live for a proper appreciation of his quirks and fancies and flashes of rendering?"