That's probably inaccurate. Sure, I'll accept that the masquerade does more harm than good (for the girls, leaving aside the ethical concerns of greater contract/witching chances), but saying it only helps Kyubey is almost certainly too general. Off the top of my head, it removes (some) malignant social pressures, and ensures that people can at least wish for what they think they want, which while not as good as wishing for what they actually want is probably a lot better than wishing for what some society convinced them they want. Additionally, it prevents people (esp dictators) from wishfarming their way to victory via indoctrination and kidnapping (even attempting it would be very bad, regardless of the results). There's probably even more I can't think of, although admittedly very few of these couldn't be solved.
There is totally reasons not to tell them. First off, not everybody cares for others as much as people think they do, and people in general can't keep secrets for shit. Telling close people as a general strategy for meguca will end up with it as common knowledge within the year. The isolation is a thing, albeit an avoidable one- people who are different stand out. While most people will probably handle it well, there will be bullying, jealousy, and suspicion.
Tl;Dr
-In this specific case, the masquerade is a negative
-In general, it does a lot of damage for whatever good it does
-It does, however, serve a purpose