I was asked where in the Torah does it say that we have free will and if this free will is an illusion of free will (which does not mean that we should do bad)

All of the commandments of the Torah are based upon the fact that man has Free-Will to do or not to do them (BTW, chazal refer to "bechira"- Will and not bechira chofshit-Free Will, bc there are many instances in life where one doesn't have totally "free" will, e.g. his height, place of birth, family, people he will or will not meet, etc.). Without man's will, how can there be reward and punishment, so the rebukings/tochechot of P. B'chukotai and Ki Tavo and the concept of Tshuva/Repentence (Dvarim 30) would be irrelevant. If nevertheless, your'e looking for an explicit verse, see Dvarim 11, 26, "I have given before you life and death, blessing or curse, and you should choose life".