I know that's confusing, but bear with me.
All I'd heard about Xanadu was "It was made a long time ago and it has something to do with roller skates." My brain translated that into "It was made in the 60s and involves teenagers and zombies." Okay, then.
At the start of my dream, I was going to watch the movie, but as soon as it started, I was actually IN the movie and it wasn't a movie any more but reality. There were a bunch of teenagers in a huge abandoned house (or rather, a bunch of 20-somethings playing teenagers) and we were having a party.
Somehow, we all split off into smaller groups of 2 or 3 and I wandered off my myself (NEVER DO THAT IN A HORROR MOVIE). People started being found broken in half and stuffed in chests. The house was quiet. I came across a girl with long brown hair who introduced herself as Megan. We started chatting and became friendly. At one point, we were in the bathroom, talking and fixing our hair in the mirror. We'd left the bathroom door open.
One of the other houseguests, a girl, suddenly danced into view across the room outside the bathroom door. I say "danced," but it was really a gruesome parody of a dance; she looked like a huge puppet. Her arms were up and her legs were flailing, her head was lolling back on her neck. There was no music.
I stared at her, disconcerted, and Megan turned around and looked at her too. The dancing girl started coming closer, and Megan turned back to look in the mirror. She screamed.
Reflected in the mirror, the girl wasn't a girl, but a woman in her 40s. Her eyes were milky and she was staring at us. Megan whispered, "Mom?"
Megan had explained to me that her mom had died a couple weeks before. She spun around and asked the dancing girl, "Who are you?"
The girl stepped into the shower and turned on the water. It beat down upon her hair and face and she said, "Megan dear, I'm your mommy! See how young..." she tossed her hair "...and beautiful I am now?"
"You're not my mom!" Megan exclaimed. I don't know where I was for all this...presumably huddled under the counter in a fetal position.
"Of course I am. In the hospital, I drank her blood. Now we think with the same brain!"
At this point in the dream, I said, "THIS MOVIE IS RIDICULOUS."
Megan tried to leave the bathroom, but there were two zombies in suits in the room. They were on the other side of the room and didn't seem to be moving very fast. Truth be told, I was more freaked out about the dancing girl, even if I thought her claim of being able to share a brain after drinking someone's blood was bogus.
About that time, I had to pee, so I woke up. I was a little disappointed that there weren't any rollerskates in my dream.