While Dream Estrana is obviously not a part of the Way's reality, I feel like the connotations involving it and the people who inhabit it are unclear. From what I understand, the shadow sword "absorbs" auras (Jopaga explains auras as people's perspectives, while the "soul" is essentially what holds the aura and allows it to live). With that said, Dream Estrana does seem like a real construct outside of the Way and rather simply "inside" of Phantom Slasher or whatever sentience the sword has to create Dream Estrana. Moreso, the inhabitants of Dream Estrana are all self-willed rather than say puppets of the Phantom Slasher. With that said, perhaps rather than being an "illusion", maybe Dream Estrana is a way for the Phantom Slasher to keep all the auras it absorbs busy while the most useful one is dominant in the real world? It's not as if the inhabitants of Dream Estrana have the Phantom Slasher's best interest in mind. Essentially, within the way the "soul" is only what adheres an aura into reality, so if the inhabitants of Dream Estrana are the materialized auras of those killed by Phantom Slasher, doesn't that make Dream Estrana a valid world outside of the Way's reality?
Think of this way: while nobody remembers being killed (though Sacrifa hints he might believe that is what happened), everyone maintains exactly who they are outside of Dream Estrana while they are there. So isn't a person in Dream Estrana essentially the same as they were outside of the real world previous to their death? This would make the Lexus ending a lot more positive, despite the fact that the real world outside of Phantom Slasher will continue to suffer, all the inhabitants of Dream Estrana as well as Rhue and Lexus get to live on happily (as opposed to what most people believe this ending to be: where Rhue is deceived into an illusion by the Phantom Slasher). I think the most valid point concerning this is the simple idea that Phantom Slasher makes accommodations for the inhabitants of Dream Estrana rather than vice versa. He gives Lyrra her own fantasy world and kingdom (what she's always wanted, essentially) because it is scared of Lyrra and how she's the key to unlocking the Truth of what happened at Landorin and who Jeruh is. Midian and Sacrifa both seem to want to get to the truth as well, despite this being what the Phantom Slasher is trying to avoid. The Phantom Slasher's only real ally in Dream Estrana is Lexus, but this is simply because Lexus loves Rhue and is scared of losing him to the Truth.
Do you think Dream Estrana is an illusion created by the Phantom Slasher or a home for those absorbed by Phantom Slasher?