Parallel universes (version 1)
The theory that "Mulholland Drive" is a composition of dreams and fantasies has been the dominant one in the press lately. It's thoroughly Lynchian, and it does makes a modicum of sense. But to me, there's something about that hypothesis that feels too easy, too incomplete. Here's my theory:
The blue box is the portal between two parallel universes - a motif not without precedent in Lynch's oeuvre (remember the evil Agent Cooper in "Twin Peaks"?). Although the box represents the only direct access to each universe, each character retains vestigial memories of their parallel universe counterpart. Betty and Rita, for instance, fall into such an easy, trusting friendship since they are each subconsciously familiar with Diane and Camilla's relationship. Rita recalls the name "Diane Selwyn." Adam even seems to recognize Betty at the audition.
For me, the linchpin of the movie is that audition scene. The cowboy and the mobsters are omniscient, otherworldly characters intent, for reasons I can only speculate, on reversing the universes. They don't care about Adam's movie so much as they need him to send a subliminal message - "This is the girl" - to Betty. As soon as he utters it, Betty recognizes the blonde Camilla on stage as "the girl" who kissed the brunette Camilla at Adam's party, and she suddenly runs off. By the time she finds Diane's corpse, the discovery of the box is inevitable; through various memory triggers, Betty becomes persistently drawn toward "the other side."
Both the bedroom scene and the Club Silencio scene take place in a realm between the two universes. Betty and Rita channel the sexual attraction between Diane and Camilla, but keep the passion dreamy and idealized, in accordance with how we've seen them thus far. Crying in the theater, their identities finally collapse as easily as Rebekah del Rio's voice dissolves into tape recording. They have nowhere to go but sideways.
Here, we may notice the movie is constructed, as with "Lost Highway," like a Möbius strip. In one of the last scenes of the movie, we see Diane arranging a murder with the hitman - the same murder that goes awry in the opening scene. And there is a peculiar symmetry in the old people's appearances. In the final moments, they're a downright demonic presence appearing to end Diane's life; flip back to the beginning, and they're a kindly couple helping Betty start hers. If you doubt that the blue box is a portal, remember that the old people appear to literally escape from the box in miniaturized form before attacking Diane.
My final take is this. Suppose Camilla really dies in the car crash, but the cosmic force of Diane's simultaneous death is enough to resurrect the two as Rita and Betty, innocent new Angelenos. But suppose the powers that be, such as the cowboy, are so alarmed by this cosmic disruption that they will do everything they can to restore the women's original identities. Suppose the story then keeps circling on and on, eternally.