first say that english isn't my language so sorry for the possible errors.
Read the article, and the posts in this thread but i think there's somethings that are important that you don't mention, Rahul.
First one is the flower field, something that appears in the opening, during the game and in the ending. It's the place where Rinoa is searching for Squall, the place where the castle of Ultimecia was, the place where Rinoa told Squall that if they were lost, they will reunite there, the place where he will find her.
It's the place where Rinoa grabs a flower petal and transform it to a feather that later Squall find.
Second thing is what that feather shows him. What it made him realise to wake up. You say it told him that he was dead, but you don't mention these images:
It looks like Rinoa possessed by Ultimecia.
Watching the ending it seems what Rinoa wanted to tell Squall that she'll become Ultimecia if he doesn't wake up and lives.
Looks that Rinoa knows what is going to happen, that Squall will be lost in that dimension and die, tell him to meet at the flower field if he is lost and uses the feather to tell him that if he doesn't wake up and lives Rinoa will convert to Ultimecia, losing Rinoa and their love.
When he grabs the feather he sees Rinoa, he knows it's her but her face is blurred. Looks like Rinoa but seem that it isn't her but another person. That's when he's trying to remember her and the image of Rinoa being Ultimecia appears, showing what will happen.
The following images are memories of the time with Rinoa with a last image of Rinoa disappearing because she will be Ultimecia.
The faceless Squall and the last image means that Squall will be empty and that emptiness is Rinoa dying and their love, represented by the two rings breaking and disappearing. He realises this, cry and wakes up.
The secuence we see then is Rinoa finding Squall in the flower field, to me this happens the moment Squall grabs the feather. While he is ahving that vision Rinoa hug him, and the feather falling in that white space is the ray of light that goes through the clouds and illuminates Squall finally waking up.
For what you say of this being a dream, it seems like while dreaming he forgets that it's a dream, Ultimecia knows that it's a dream and Rinoa too. Rinoa is the one who tell him and gives him heaven.
I doubt that is posible, for that he needs an external help or power that influences him and help him to have that dream and what happens in it. It is like in the two movies that you mention and you think it's a bad thing they told that an external power is helping them having that dream. But without that, they will never be dreaming.
It looks like Edea with her hate for the Seed when she kills them, make their soul be in a state of dreaming where they forget that are dying, to make his dreams come true and in the end when they beat Ultimecia to be in Hell. That desolate place Squall wanders to be lost and alone. But at the same time the good part that is still inside Ultimecia doesn't want this, it takes the form of Rinoa telling him about the flower field and sending him the feather and telling him the truth and giving him Heaven, a happy ending where he is happy with Rinoa and friends.... i don't think so.
To me it looks that in an alternate time they beat Ultimecia, Squall died, Rinoa is being controlled by Ultimecia which goes back in time, posses Edea but she still has a part of Rinoa inside. When all that happens at the end of Disc 1, is when that part that is inside Edea leaves her to go inside Rinoa. That would explain that Rinoa starts taking interest in Squall and falling in love with him and the reason that she knows what will happen and what she tell him in the flower field. The Rinoa from the future is inside the Rinoa from the present.
I personally don't believe that, it's not strange to maybe be in love of someone, in this case Seifer, but when she saw he was with Edea, tries to kill her, Squall saves her from the monsters and tried to kill the one that saved her.... the feelings she had for Seifer will surely change. Just look at the face of Rinoa screaming when Squall is hit by the "icy spear". She just starts falling in love with Squall.
For the theory of Rinoa future being inside Rinoa present and that sequence in the flower fields, i really need to play the game again. I don't remember if this was before or after they were in the moon. I remember that in the moon Rinoa told Squall about her love to him, and later she leaves and Squall goes rescue her. That scene where they hug... so maybe if this is after Rinoa being rescued that's when she knows what will happen or not.
Either way i need to play the game again, i didn't catch that Rinoa=Ultimecia thing, or Laguna is Squall father te first time... but understood what happened in the ending. Rinoa disappearing, Squall will lost her and your love and he cries because of this and wakes up in the place Rinoa told him. Even if you include that faceless Squall it still means Squall is empty and not dead, just look how the camara goes through the hole to show Rinoa in space.
The thing about Squall dying at the end of disc 1 and the reason to him saying "no wound" is becouse is soul leaves his body to enter Laguna body in the past thanks to Ellene, so she is the one that saves him.