There's an interesting analysis about it comparing it to T.S. Eliot's "Wasteland" in Wilcox's book "Why Buffy Matters". A very interesting book...it not poorly edited and jumps around a lot..some very interesting insights.
YAY! I'm glad someone else has read this wonderful book!
One of the main things the author of "Why Buffy Matters" talks about is the three younger scoobies are searching for themselves. For example Willow seems to be challenged in her dream that she isn't being the really her. At one point in the dream, Buffy tears of the clothes that Willow has been wearing and is back to very similar clothes, and hairstyle, that she was wearing in the first season. Clearly Willow is still trying to figure out who is the real her.
Buffy herself is still trying to figure out who she is. Instead of facing the darkness in her, she chooses to ignore it. Tara tells her "You think you know what you are... What you'll become...You haven't even begun." Clearly Buffy is questioning herself there. In the next season she has Giles help her explore some of her darker aspects.
Xander is the same way. Xander feels that he has been left behind by the rest of the gang. Both Willow and Buffy make comments to the affect that they are "way ahead of him." Xander is also trying to figure out how exactly to escape his basement, which he is always brought back to in his dream, in order to catch up to the rest. Like Buffy and Willow, Xander hasn't yet found out who he is yet.
The cat in Willows dream, even though it is called "Miss Kitty". could represent any of the three younger scoobies. Tara says that they don't know the cats name. None of the younger Scoobies seem to know who or what they are at this point in the series, so the cat could be any of the three.
