We're talking purely about physical attractiveness, right? None of this "beauty is on the inside" stuff - which is certainly true, I hasten to add, but there is such a thing as physicality and that's what we're asking about here I think.
I believe it is a "to-each-his-own" thing. I also think it is totally normal to think that the person you are with is more attractive than you think you are. What's the alternative? That you think the person you are with is less attractive than you think you are? That seems less likely, doesn't it? Or that you think the other person is exactly the same amount of attractive as you?
For me personally it's funny, sometimes I think about this question and sometimes not. I have a current fuck buddy who I think is just so super incredibly hot, and I tell him so, and he tells me I'm crazy. But then he was telling me a story of being on a date with a guy and the guy telling him "Oh, I don't even know why you agreed to be on a date with me, you're so out of my league"...and my friend kind of agreed with the guy, but he really wasn't trying to be immodest, just expressing his honest opinion. I said that I had actually wondered the same thing when we first met (and I still wonder it sometimes): "Why would this gorgeous man want to have sex with ME?"
Then again, he tells me sometimes "you are so adorably cute and sexy, do you know that?" and I say "No I don't, but I'll take your word for it." It's a to-each-his-own thing.
I had an ex who sometimes wanted to have a third join us (I know...it's a whole different story for a whole different thread) and we would find some guy who seemed like what we were looking for, but my ex would be like "Oh no, he's too hot, we can't have him over." And I'd be like, "WHAT? That makes no sense." But, in this context, and in a way, it kind of does make sense.
US culture is so messed up when it comes to all body image related issues, for women but also for men and especially for gay men. It's like you are "supposed" to be either a twink, or muscular, or a bear, and if you aren't as muscular as the next muscular guy then you are worthless...but we all live in a real world where most people we meet don't look like Matthew Rush (thank God...too muscular for me) so we all know we are not the "ideal", but we want to have sex with that "ideal" and we too want to attain that "ideal" even though we know we will not get there, and all of us are at different degrees of approach to the "ideal."
At the end of the day that is all bullshit. If you're gay and you meet a guy who you think is cute, who thinks you're cute too, then hooray for both of you!

Hang out, chat, get to know each other, or just go home and fuck, whatever works

To your post title "self perception, real or distorted?" I would say that usually our self-perception is distorted more negatively than it needs to be. We should just lighten up and enjoy life.
BTW I'd also like to mention that if I saw barsonlyone out somewhere and he was flirting with me, I would think "Really? That gorgeous man is giving ME The Look?"