While the Squall is Dead theory has merit, the ending seems too happy and unfitting to go along with it. If the ending is part of some kind of dream, then it makes about as much sense as Evangelion Ep26 (Squall's ideal reality?).
After I finished the game, I figured that the story is out of order. As I see it, the first part of the ending (Squall wandering) is chronologically the first event in the game. As he wanders, he tries to recall reality. This struggle to remember who he is and how he got there is what the game actually consists of. "I'll be here, waiting." The intro video is his mental process as he begins to recall the events that brought him to the time-compressed reality, one bit at a time.
Remembering Rinoa's words are the key to remembering, and he starts with the first significant event in that chapter of his life (the fight with Seifer). From the end of the intro video until the ending cutscene, Squall is recalling the events from his own, very skewed perspective. The events in the game may be representations of the story as Squall saw them, and perhaps not as they really happened. This forgives a lot of the oddities (Moombas?), and further justifies the use of Squall's inner monologues.
Sakaguchi specifically noted the difference between how Cloud's personal thoughts are intentionally hidden from the player, while he wanted to try the opposite with FF8. Telling the story from that character's perspective always seemed to me a good way to execute the concept.