Yeah, I had thought about that whole Westhouse showing up a few days later thing. But, it might be reconciled if he said hello to Benrime and said he needed something from the basement before they talked. It's not a great explanation, probably pretty bad. The key is to collect all the incidents with the prophet, Brian, and that Dark One that didn't recognise April and piece together what information we have.
1. The Prophet goes to the Inn and somehow goes unnoticed by Benrime, even though he opens up the door to the cellar.
2. Brian appears a day or two after the Prophet incident and appears in good health and age. I forgot, but I guess someone said that April remarks on how young he still looks.
3. Brian went into the portal in 1933, is supposedly "the last hope" according to some Monk's, and meets the undreaming.
4. Brian "reappears" in Arcadia about 300 years later, and while a drunkard, appears to be an honest, good person. He says this is a result of him being "unstuck" in time.
5. The Dark One ship captain doesn't recognize April when he should. The other Dark One says that something might have "blinded" him.
6. Brian remarks with "evil intrigue" at Zoe's power. Also, the White Dragon has a strange reaction to him.
7. The White Dragon seemed to recognize her assailant before the attack.
The problem is reconciling all of this data into a cohesive, probable story. Here's my theory.
1. Brian Westhouse was invaded by the Undreaming and taken control, but the Undreaming lay dormant. He was stuck in time until the Undreaming saw it's opportunity for its evil desires, so it "kicked" Westhouse out of statis he was in, and into Arcadia. Lieing dormant once again, it allowed Westhouse to live as he wished to, gaining trust and reputation in Arcadia. Now the Undreaming is taking control of Westhouse much more than before, but he remembers none of it, an unwilling, unknowing accomplice. Westhouse is the Prophet, and attacks the Dragons (this would work well with his journeys across the globe) and is behind the plot to destroy dreams. In this tale, Westhouse is merely a tool. The problems here, as you stated Moo, is that Benrime, while not noticing the cloaked man, reacted to him as if she hadn't seen him for years. This can be solved by a hypothesis: the Undreaming can cloud people's thoughts, and not allow them to recognize truth as it is. This would allow the Prophet/Westhouse to walk into the Inn, and cloud Benrime's thoughts making her forget that she had seen Westhouse, that he was even there. This would also account for the Dark One and the White Dragon, who's thoughts had been clouded by the Undreaming. This makes sense since the Undreaming must be some supernatural force that deals with thoughts, so clouding others thoughts might be a tool it has. Just as it clouds Westhouse's mind so he never realizes it is there. It is killing the Dragons because they, like the Jedi for the Emperor, are the only real force that stands between it and what it wants. What does it want? Dreams. It hates dreams. By definition, it is the Undreaming, and any dream that occurs in the world drives it mad with jealousy and hatred. We have seen that the Undreaming has a good potential for extending livespans, so my theory is it also exists in or controls Peats. Sure machines are necessary, at least for looks, but it is really the Undreaming that is controlling Peats and creating the scherme for dreams. Thus upon Peats death, the Undreaming leaves its control of him, and takes over Reza. I think the Undreaming can only control 2 people at a time, one in each world, and this would explain the whole remark from Zoe that Reza is not really Reza. That's my theory, please point out missed points or holes, and I'll try to fill them.
PS- I love you quote, Moosferatu! Psychonatus rule! That's my favorite level in the whole game!