This is the common usage.
See the linked Washington Post article from 5 days ago, for an example of usage.

הביטוי הוא מהסיפור
The Emperor's New Clothes
מאת הנס קריטיאן אנדרסון



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Note added at 20 mins (2012-01-25 10:52:21 GMT)
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Elli,

You are correct, I answered too hastily, it should have been the Emperor is naked / the Emperor has nothing on / etc.

Thanks for pointing that out.

Elephant in the room" is an English metaphorical idiom for an obvious truth that is being ignored or goes unaddressed. The idiomatic expression also applies to an obvious problem or risk no one wants to discuss.[1]

It is based on the idea that an elephant in a room would be impossible to overlook; thus, people in the room who pretend the elephant is not there have chosen to avoid dealing with the looming big issue.

The same idea without a literal translation.



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Note added at 26 mins (2012-01-25 10:59:13 GMT)
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http://en.wikipedia.org/wiki/Elephant_in_the_room

As you will see from the following link, it is often the title itself used in colloquial speech to describe the situation:
"The title is often used to describe a situation in which people are afraid to criticize something because everyone else seems to think it is good or important."
http://www.ldoceonline.com/dictionary/Emperor-s-New-Clothes-...

Also, for reference from Rosenthal's מילון הצירופים
"הכבוד והסגולות המיוחדות שיוחסו למנהיג התגלו חסרי כיסוי וכוזבים. מקור הניב בסיפור "בגדי המלך החדשים" מאת הסופר הדני הנס כריסטיאן אנדרסן, וראו בגדי המלך החדשים. "אני הוא הילד שרץ ברחובות - אני הוא המלך, עירום מתקווה"."

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Note added at 23 mins (2012-01-25 10:55:33 GMT)
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"If only that were true. Because, from where I’m sitting, Discover not only isn’t customized, it also isn’t useful and it isn’t entertaining. Instead, it’s The Emperor’s New Clothes of Twitter features – by all accounts, not much more than a randomly-generated list of popular news stories and trending topics, and a waste of everybody’s time."
http://www.mediabistro.com/alltwitter/twitter-discover_b1794...

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Note added at 2 days27 mins (2012-01-27 10:59:44 GMT)
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NOTE:
Can also describe a person:
"Don't fall for the hype about her, she is the "Emperor's New Clothes" of the BBC just now and is just not remotely even amusing, let alone funny!"
http://www.dailymail.co.uk/femail/article-2074068/Michael-Mc...

"I agree completely about Ibrahimovic in that he is the Emperor's New Clothes of football players."
http://forums.comicbookresources.com/showthread.php?t=275027...

"Either I'm missing some humor gene to 'get' what makes them funny OR they are the Emperor's New Clothes of comedy."
http://forum.rpg.net/archive/index.php/t-410650.html