What about a pair of binoculars and a childrens book about birds? If she's into Dora and Diego it may be a good way to help her discover things around the house without being directly linked to D&D, maybe...
I'm thinking this year for both my girls (ages 4.5 and almost 8) hitting up thrift stores and walmart/target and getting some new-to-them dress up type clothes in a trunk.. so that may be an option if she likes to dress up
I would let it run its course. Even if he is seriously convinced, sooner or later he'll realize that it's not actually happening.
I think it's fine, as long as he doesn't try to climb too many high walls