Lynch loves to realistically portray logical sequences interspersed by fantasy diversions, which entrances but confuses the viewer. Blue Velvet is his best film, and works well because of its overall logical coherency spiced up by fantastic deviations from the norm (the fantasy element of the film). This technique reminds me of Fellini's 8 1/2, where fantasy was often interspersed with a logical and coherent plot.
Mulholland Drive starts off logically but then gradually abandons logical coherence as dream-like (but realistically presented) sequences are brought into the plot. Then there is a shift in the plot, from the fantasy of the first part, to the reality of the second part where roles and identities are reversed and reality reigns.
Lynch's genius is in his artistic slight of hand where he presents a fantasy scene realistically, sucking the viewer in to expecting a meaningful depiction, then upending these expectations in shocking the viewer with the fantastic elements of the scene. I can imagine Lynch laughing in the background as he plays his joke on the viewer.
The film Holy Motors presents pure fantasy in nonsensical and unrelated sequences, and is bad art. Mulholland Drive has enough organization and structure, with more skillfully accomplished fantasy, to qualify it as good art.
Naomi Watts gives us an outstanding performance - better than the typical "Best Actress" Oscar award winner's performance in the last 20 years. Watts usually gets roles that don't allow her to display her considerable acting skills, but this role does, and she more than meets the challenge.
The plot is secondary for Lynch since cinematic art is his focus. However, the movie is totally baffling unless you have some guidelines. Basically Mulholland drive is the story of a young girl who comes to Hollywood with high hopes of becoming an actress. The film is told in two parts. My interpretation is that the first (Watts as Betty) part is psychotic delusions of the young girl as she reconstructs her past leading up to the promise of a brilliant acting career. This is presented as reality and the viewer has no idea it is false. The shift to the second (Watts as Diane) part shows some shifting of roles, and depicts the true story whereby the young girl fails to become an major actress. Her identity is valid, as Diane, in the second part showing her dismal failure, while Rita of the first delusional part becomes Camilla in the second reality part.
Naomi Watts thus plays two roles with different identities, in part one and in part two. The two parts are cued by the change in her name from the delusional Betty (part I) to the real Diane (part II). In a clever signal of this personality change, the waitress at Winkie's is named Diane when Betty and Rita go to eat there in the first fantasy part, while this same waitress becomes Betty when Watts as Diane goes to Winkie's in the real second part.
The plot shift from fantasy to reality mirrors the high hopes and aspirations as fantasy (Part I as Betty) and dismal failure as reality (Part II as Diane), that happens so often as young would-be performers seek fame in Hollywood but end up as failures.
