The Terminology is a bit foreign to me (and I'm afraid I'm not used to have any arguments whatsoever in this field :), but it shouldn't stand in the way.
I heard about the Software/Hardware concept of the brain (I think I read about it in a book called "Modern Philosophy of the Mind", which includes assays in this field from the last century), but I still have difficulties with it.
This Software/Hardware concept mustn't be applied only to the brain and awareness - it is basically the same with every abstract concept. the chess board is physical, but the laws that govern the game of chess are not - they are simply a theoretical model. the pen and paper are physical, but the Alphabet is not. it has abstract laws of itself, which unlike physical laws, are not imposed on reality. we can imagine other Alphabets, just as we can imagine other rules for a chess game. so are the rules of a chess game an "object"? are they a "real" physical thing (assuming that only physical things are "real")? I imagine you would say they are not, just as the concepts of an operating system are not real. every single situation on the chess board is just a collection of physical objects, and it is definitely physical. however, the rules of the game are not. every "snapshot" of the windows operating system is a physical object as well. the logical gates have some values, and the collection of the currents and the voltage and every other physical property defines the system at that moment rather well. however, the rules that govern an operating system are abstract, and I do not believe a materialist could admit them to be "real" in the sense of a true physical object.
So what ARE the rules of a chess game, or an operating system? I imagine one could say they exist "within our thoughts". however, this is an explanation I cannot accept for the concept of thought itself, or for the concept of awareness itself. I disagree to what you said before - the illusion cannot observe itself, the awareness itself cannot be just an illusion observed by our awareness, or at least I cannot understand what it means. the thought itself cannot exist just "within our thoughts". the definition this way seems to be biting its own tail.