Thanks guys, I'll think about getting rid of it. I was going to carve the deadwood here anyway so if anything natures just playing my cards for me. Mushrooms shouldn't damage live wood. My understanding of them is that they decay deadwood and other organic decaying matter.
(Let me just say first that it is quite beautiful, and I'm glad you took a picture...)
But remove it from the tree ASAP. Especially since it is inoculating all of your soil with it's spores right now. And not the good kind, fungus growing on the wood itself is not a mycorrhizal species. it is the kind that wants to eat your tree.
I've studied forest pathology (basically an entire course about how fungus kills trees) and mycology in college. the fact that you even have a fruiting body growing from your tree is a guarantee that you already have a network of mycellium travel through the dead wood and probably into the heartwood.
Something alot of people in the general population don't particularly realize, not sure about the average bonsai enthusiast... is that the heartwood of any tree is actually
dead.
Meaning most of the mass of your tree is probably dead. That's just how tree growth works. This is dependent on the age of the tree though. Younger trees are usually mostly sapwood still.
But basically what this means, is if you let that fungus do whatever it want's it will eat the insides of your tree, completely hollowing it out. Yes, living cells have ways of walling off and creating barriers against mycelium. But that only lasts so long. In college I was taught that what kills trees more than anything else is fungus. It may look like it was something else. But for example, trees in nature that eventually fall over with age and die... many times their heartwood was completely hollowed out by a fungus, leaving the tree unable to support it's own weight any longer. Even with many tree diseases associated with invasive insects like beech bark disease (beech scale insect), the insect does not kill the tree. Simply drills a hole through the cambium so the fungus can successfully invade the tree and kill it from the inside out.
Lol, please don't take that as a rant... I just find this stuff really interesting and enjoy talking about it. I love mushrooms too, and that is really an amazing sight to see. I just wouldn't want it on my bonsai tree for any longer than it took to take a picture!