My hypothesis is that dreams don't actually happen as we sleep, just that the conscious state "arrives" in the brain before the cleaning/storing processes have completed. The brain then creates a memory to explain what's hanging around from the clean-up. So the dream happens during waking, the brain inventing new parts as we try and recall the dream so that the dream state can be established from a logical timeline.

Analogy: a magical secretary is tidying your desk and files. They pull out some files to re-order, put some files you were working on away, lift it pages/images to see where those files should go, etc.. You interrupt them and they scuttle away. You don't believe in magical secretaries so you quickly (and inconsistently) imagine that you were working on the files that were out making a story that explains how those files came to be there, in that arrangement.

Presumably if scanning techniques can show images of what we see in dreams that provides some evidence against this hypothesis, however it doesn't defeat it unless it shows we _experience_ those images through the period when we suppose we're dreaming.

Evidence that refutes this idea gladly considered.