The question is not whether we exist or not but whether we know of our existence because of mental thoughts or because of physical reality.

I'm confused: do you intend your category of 'mental thoughts' to encompass the whole of subjective experience or just introspection?

If the former, then yes, subjective experience is what any theory of physical reality ultimately has to explain. There's no reason why your theory could not include a lot of distortion, but you still have to be parsimonious and justify that distortion in some way.