It's not that they're blissfully ignorant, it's that their sense of logic and their primal instincts are clashing. That moment Brett picks up the Chestburster's shedded skin you can tell there's a chill going down his spine, but he figures 'How bad could it be?' After all, people have been killed by animals before. And apart from the shocking fashion in which it happened, there's no real reason to treat Kane's death as anything else but that.Sir Thomas Sean Connery said:I'm not failing to see anything, I just disagree with your reasoning.
I think the idea that they were in denial is a thin justification at best.
If the xenomorph had simply appeared on the ship, or if they had been transporting it in a shipping container or something and it got loose, you might have something, but between discovering it on an alien spaceship and the thing blowing out of a man's chest, then growing to full size in an extremely short time, it makes absolutely no sense that they would have that level of denial that it wasn't a common pest.
Again, they've never encountered anything like this before, so initially they equate it to something they are familiar with. But already when the crew is discussing the plan to drive it out of the vents into the airlock, you can see the fear and helplesness on everyone's face. But they still try and hope for the best that it won't be as bad as all that. It's in our nature to act this way when confronted with something all powerful that we can't understand.