The central thought in my solution to the interpretive puzzle is that valuing, in Nietzsche's recommended practice, involves the generation of "honest illusions". It can be thought of as a form of make-believe, pretending, or, the non-Nietzschean phrase adopted here, "regard … as": S values X by regarding X as valuable while knowing that in fact X is not valuable in itself. The motivation for this interpretive strategy arises, perhaps not surprisingly, from what I have called interpretive constraint (4), namely, the suggestion in Nietzsche's texts that there is some close connection between art, avoiding practical nihilism, and the creation of values.
So Hussain, on p 166 of "Honest Illusion: Valuing for Nietzsche's Free Spirits". The mentioned interpretive puzzle arises out of four constraints; the fourth, as indicated, is that the creation of values and art are closely related. The first three are (1) "A central task of Nietzsche's free spirits is the creation and revaluation of values" (158); (2) "Nietzsche's free spirit 'conceives reality as it is'" (158); and (3) "Nietzsche claims that nothing has value in itself and therefore that all claims of the form 'X is valuable [sc. in itself]' are false" (159; I added the bracketed material). I find this position implausible both interpretatively and substantively: interpretatively because several passages proffered in support seem to me to be better interpreted otherwise; substantively because it seems impossible to prevent the position from collapsing into one Hussain explicitly rejects, in which the free spirits come to believe that there really is value in the world.
In the pages following the blockquote with which this post begins, he attempts to flesh out the relationship of Nietzsche's writings on art to the pretense theory he attributes to Nietzsche. Here are (parts of) two he quotes, GS P4 and GS 299:
Oh, those Greeks! They knew how to live. What is required for that is to stop courageously at the surface, the fold, the skin, to adore appearance … Those Greeks were superficial—out of profundity.
How can we make things beautiful, attractive, and desirable for us when they are not? And I rather think that in themselves they never are. here we should learn something from physicians, when for example they dilute what is bitter or add wine and sugar to a mixture—but even more from artists … Moving away from things until there is a good deal that one no longer sees and there is much that our eye has to add if we are still to see them at all; or seeing things around a corner and as cut out and framed; or to place them so that they partially conceal each other … all that we should learn from artists while being wiser than they are in other matters. For with them this subtle power usually comes to an end where art ends and life begins; but we want to be the poets of our life …
After quoting GS 299, Hussain writes that "it is the example of art that (i) shows us the psychological possiblity of regarding things as valuable even when we know they are not, and (ii) provides a source of techniques that, suitably refined, could help us succeed in regarding things as valuable outside the domain of art proper" (172). Art enables us "to engage in a simulacrum of valuing by regarding things as valuable in themselves while knowing they are not" (175).
But doesn't that actually run directly counter to the passages just quoted from Nietzsche? In the first place, GS 299 begins with a contrast between how things are in themselves and how we might wish them to be for us, without ever suggesting that their being thus and so for us consists in our taking them to be thus and so in themselves. When the physician sugars his medicine, rendering palatable for us something that by [sic] itself is not, we don't think that the medicine thereby becomes sweeter in itself, though the mixture is sweeter than the medicine is; in that sense he makes it—he makes what we confront, what we have to do with—attractive, and no one involved projects the attraction onto the unmixed drug, knowingly or not. Similarly, when we esteem as beautiful or attractive a tableau in which some thing is concealed by another, do we judge "this thing, of which I can see only a part, is itself beautiful"? Isn't it rather than the scene, in which many things that are themselves not beautiful are nicely arranged, is judged to be beautiful? After all—are we not to stop courageously at the surface? Even remarks to the effect that, e.g., "we do not always keep our eyes from rounding off something and, as it were, finishing the poem" (GS 107) do not directly support the reading. It is clear from context that this rounding-off is not the ever-present (hitherto ever-present?) coloration of the world with moral evaluation (in WP 260) with which Hussain immediately pairs it, since it is introduced by saying that "now there is a counterforce" (emphasis added). (Something similar could be said about, for example, the remark somewhere in BGE that we are more artistic than we know, because we perceive things as enduring. That illusion, if it is an illusion, can't be what's presently relevant, because we all already engage in it anyway.)
Substantively, while there is a brief discussion of whether the kind of make-believe that Hussain describes is actually practicable, I don't think it really gets at the issues very deeply. Recall that the free spirit's pretense has a certain content and purpose, having respectively to do with the real existence of values and the avoidance of nihilism (thereby enabling a certain kind of life for the free spirit). This makes the going about of the pretending a rather delicate business; it can't obviously can't be at the front of the free spirit's mind. The pretense that something is valuable in itself can't be accompanied by the thought "… not really, though"; if it is, the "simulacrum of valuing" (p 175) in which she engages will be too overtly pretended to serve its purpose. (In this respect the pretense is decidedly not like any pretense we engage in regarding artworks, which is severely delimited. We do not actually try, or pretend to try, or try to pretend, to talk to the people in novels or paintings. We may talk about them as if they were people, and point out interesting facts about their pretend actions or pretend clothing, but we implicitly recognize a point beyond which we do not carry the game. This, I think, is a large part of the reason the pretense is compatible with the acknowledgement that it's a pretense. If the free spirits' pretense contained inner limits like that, it could not play anything like the role in our lives that actual valuing does. The point here isn't that (as Hussain suggests) the free spirits' valuing, being pretended, wouldn't be like the valuing that had come before, in that, say, "a particular kind of seriousness and gravity that is part of traditional morality could not be regenerated within" it (175n43); it is, rather, that this pretense would seem, unlike the pretenses with reference to which it is developed, to have no "outside". (Unless of course the free spirits hop from valuational system to valuational system, but that seems to me to make the whole thing even harder to maintain.))
If the pretense can't be like that, it must be one in which for long stretches there are no occurrent thoughts about the pretense itself. However, engaging in a really thorough-going pretense is one of the things one would do if one wanted to end up actually believing that things have value in themselves—faking it is a time-honored technique for making it—and it's a constraint for Hussain that the free spirits don't do that. So they must both lose themselves in their pretense, and not get so lost that they end up falling for it: a hard needle to thread.
Part of the discussion in which feasibility is addressed runs thus:
In imaginative play, successfully regarding a pile of wood as the Bismarck under fire requires, or at least when one is, as we say, 'into' the game, engaging in certain actions, or pretend actions—ducking from the incoming shells (just tennis balls, of course), yelling at your gunners to fire back, and so on. It also requires certain physical responses: the increased heart beat, the sweating of palms, and an intense exclusive concentration.
However, as far as I can see, it doesn't require much further than that—and if we can say that doing that sort of thing (having that sort of involuntary physical response, engaging in certain voluntary physical actions in an appropriately engaged way) just is what "regarding a pile of wood as the besieged Bismarck" comes to, then we conspicuously don't need to say that the pretender pretends that the wood really is a ship. The players can just declare "that over there is the Bismarck and these are shells", thereby giving a bit of structure and narrative to what would otherwise be arbitrary; involvement in the game can then come from competitive spirit, or the fun of throwing tennis balls at your friends, or whatever, and no illusion, honest or dishonest, need enter into it.