How do you advise an early career researcher who has an unrealistic opinion of their prospects?
Honestly, without putting down. 

Explain the weaknesses of their approach or profile, explain what they would have to change in your opinion to get where they want and explain what they can do if it does not work this way. The point is not discouragement, but letting them understand what their options are. Some people are able to rise far above their original level, just as some never exploit their possibilities.

Whatever you do, you can not go wrong if you understand that the choice remains theirs and yours is only to show them the map.