Three

Dream Warriors

After the abortion that  was Freddy's Revenge, this feels more like the real sequel.  Without retconning anything, it picks up with characters and styles of the first film.  I originally said that it was a close second, but I really think that it's better than the original.

First off, let's talk about the cast and crew.  Wes Craven, Heather Langenkamp, and John Saxon all returned.  After rejecting Craven's original script because it was too violent and vulgar,  the studio had Frank Darabont rewrite it.  It was Angelo Badalamenti's second score after Blue Velvet.  The cast also featured early performances from David Arquette's sister and Larry Fishburne.

The film really enriches Freddy's mythos.  Freddy's character is more sardonic like we've come to remember him.  The dream imagery is a bit creepier, and more stylized towards each victim.  It has some of the most memorable dreams of the series: the trackmark mouths, the nurse with the Freddy tongue, the TV death.

Freddy's mother, Amanda, is introduced, along with the "Son of a hundred maniacs" chant (which I could be wrong, but I also think that there are times in the series where "a thousand" is used).  The goofy themes of a nun being raped by a hundred lunatic inmates might have been too campy for the first film, but fits in nicely here.  It also features what is arguably Freddy's most famous line: "Welcome to Prime Time, bitch!"  Although I was always partial to: "I said, 'Where's the fucking bourbon?'"

I mentioned that with the first two films, that conquering Freddy almost seemed made up as they go with no real logic except to wrap up the movie.  In  Dream Warriors, the ghost of Amanda Kruger tells Neil to bury Freddy's bones in sacred grounds.  Even though this solution is nearly as random as the other two, at least it comes from good authority (a ghost with some understanding of the situation).  Therefore, making some kind of sense.  It also states that the souls of the dead children make Freddy more powerful, which is an clean way of establishing that Freddy can have any magic power that the suits the story.

This is I think (I still have a bunch to re-watch) the only Nightmare film where adults believe the kids.  Although, there are still quite a few that believe that Freddy is nonsense; the girl hanging from a TV in the wall is chalked up to suicide.  Another thing that's odd: when they mention that Amanda Kruger got locked in the asylum for the holidays, that implies that the asylum closes down like a department store or something.  Like, what, does the staff just lock up and leave the inmates by themselves all weekend?

The sequence when the kids discover their dream powers is kind of silly.  Also, no one has the power to fly?  Isn't that what everyone wants to do in their dreams?

I also think Nancy makes some decisions that she is too smart to make.  By bringing the kids into the dream world, she and Neil (a doctor) sacrifice a few of them to stop Freddy.  Seems a little irresponsible.  It also seems weird that she falls for Freddy's trick at the end, but I guess it makes for a dramatic death.