Fascinating stuff.
I’ve had one story idea that came to me as a dream. I worked out a rough synopsis but haven’t returned to it. I think what was pivotal was the emotional core (yearning) of the protagonist (a young woman whose friend went missing on their vacation — not a very unusual movie plot). In a way, we are all protagonists in our dreams, struggling with some sort of problem or quest.
About editing: in dreams (mine at least) there’s often an unusual or absurd transition from one scene to the next (like what Murch is describing), but it seems natural during the dream. It’s the same when we watch a movie. The cuts are not logical but there but the scenes seem linked — the connection, I think, is supplied by the viewer (who “gives them a coherence” in Murch’s words).
There may be exceptions — Eisenstein’s cuts are often jarring (they’re intellectual, like metaphors). Cuts in most David Lynch films are experienced as absurd, but that doesn’t take the viewer out of the story because the viewer accepts the surreal or non-logical set-up of Lynch’s world. We feel that there is a meta-world that we experience but don’t see (like the cathedral the Elephant Man builds from seeing only the tip of the spire from his window), one that is more complete than our ordinary world.
This may be why the elaborate templates mandated by some gurus result in such paltry stories — these formulas take the writer out of a more dream-like mode into a hyper-rational assembly mode.