This is my second response to James. His words are in italics.
I'd like to point out an irony. Your approach to the historical evidence is to ask "But couldn't this have been made up?" rather than to ask what conclusions most naturally from the evidence.
That is not my approach. I said once before on your blog: If the Jesus-myth theory is to succeed it must explain the evidence better than historicism. I am not yet completely sure if it does that, which is the reason I wanted to discuss this with you. I am open to anything you may point out which sinks the mythicist position.
[I]f you claim that the earliest Christians did not believe that Jesus was a historical flesh-and-blood individual, then how could he have had a brother who was the leader of Jewish Christianity and connected with Paul's opponents?
Please allow me to give you a quote from Origen:
250 CE. Origen Contra Cels. lib. i. p. 35, 36.
"Now this James was he whom that genuine disciple of Jesus, Paul, said he had seen as the Lord’s brother; [Gal. i. 19.] which relation implies not so much nearness of blood, or the sameness of education, as it does the agreement of manners and preaching. If therefore he says the desolation of Jerusalem befell the Jews for the sake of James, with how much greater reason might he have said, that it happened for the sake of Jesus."
Although by this point I think the Christians had taken to believing in a historical Jesus, I think this is a vestige of the belief in a cosmic christ (they had passed down the knowledge that James was only a spiritual brother of Christ). I must also point out that Paul simply calls James "the Lord's brother", not "Jesus' brother", which I think is more naturally interpreted as a spiritual relationship.
Second, why would Christians claim (or more accurately acknowledge with some reluctance) that Jesus was baptized by John the Baptist? Is the latter merely a mythical figure from the heavenly realm too?
No, I happen to be quite convinced that John the Baptist existed.
To get to the point: I don't understand what would make you think that Christians were reluctant to accept Jesus' baptism. It is in the earliest gospel Mark, so it is practically advertised. This would have been written many years after John's death, so I don't understand why anyone would be cornering the Christians into admitting this. In fact, was there anyone cornering them into admitting it? Secondly, what is the signifigance of baptism? Remission of sins, of course. According to the gospels, Jesus did not sin, and so it baffles me to think why this was recorded. Was it supposed to be an example for what the Christians were to do? That's what I suspect. Of course, you could say that it fulfills the criteria of embarassment (why would Jesus do it if he hadn't sinned). Then again, why would the Christians record it unless there was a good reason, such as to set an example for Christians?
By the way, I just wanted to link to an article on the gospels as allegorical fiction. It is very interesting and represents my views well.