by Erniesam » 27 Oct 2013
Good questions indeed. I've wondered about that too. I don't think you should see the segments as two different elements in the film and equate the dream of Rita with the fantasy and reality segment. You have to remember that it is still Diane who dreams the dream of Rita: Diane can pick and choose from Rita's dream, but Rita not from Diane's dream. So Diane knows what's going on in Rita's dream and therefore can talk all about what happened in her "own" dream.
The function of Rita's dream in my mind is to suppress reality as far away as possible. Diane let's Rita dream in the hope that she can bury reality even further as she could in her "own" dream. And reality is indeed locked further away from reality than in Diane's "own" dream. When Rita says: "I thought sleep would do it," she means within that scene that she hoped to be able to remember her name, but it also means that Diane hoped that the dream of Rita would suppress reality deeper, but...Diane cannot keep Rita asleep for long.
To see this as a dream of Rita would also explain the shot of Rita still sleeping after the scene with Dan and Herb. Why would Lynch show us Rita sleeping, while we already know that she was asleep and that the scene with Dan and Herb was probably a dream of hers? To me this suggest that Lynch is saying to the audience: "Watch out, Rita is still asleep. It's not only this scene but a whole bunch of scenes that follow that are in her dream." Indeed, during these following scenes we do not see Rita wake up. Only in the appartment do we see her awaken.
No, how can that be? We have seen Rita fallen asleep and within her dream she falls asleep again? This had me puzzled a bit, but I guess it's actually quite simple: Rita dreams indeed of herself falling asleep, but it is DIANE who dreams about Rita waking up! We have to remember that Rita is just a persona in Diane's dream and it is Diane herself that dreams of Rita having a dream. This dream within a dream is just a tool of Diane to get as far away from reality as possible.
So does Rita dream? Yes, but because she is just a persona in Diane's dream, it is actually Diane herself who dreams the whole thing.