There is one big thing about the story that throws a twist in everyone's assumptions though, and that is the fact that Laurie and Michael share a mental connection, ala Michael and Jamie Lloyd in Halloween 5. That was a nice narrative homage, IMO. So where do we separate vision from reality? Personally, I'm going to say that it's as simple as this: Laurie shoots Michael at the end of the first one, Brackett finds her walking down the street, they load Michael into a van and Laurie and Annie go to Haddonfield Memorial Hospital, get treated, Laurie moves into the Brackett's place, gets a job at the coffee shop, sees a psychiatric counselor, and has frequently occurring nightmares of Michael coming for her in various scenarios. The most vivid one being the hospital, as while she was there she was probably scared to death that Michael was going to get her there. But he doesn't. So she has nightmares about it instead. Nothing happens until a year later when Michael has gotten so far beyond mental competency that he is seeing some bizarre visions of himself as a child and his mother.
Halloween rolls back around the next year. As the psychiatrist told Laurie, Halloween seems to be a trigger point. It's when Michael killed his family which is what causes the relation to the mentality behind it being Halloween. So, when Halloween comes the following year, Michael justifies going back after Laurie again by having hallucinations of his mother telling him that he needs to bring the family together. He hacks and slashes his way back to Haddonfield's city limits, starting at the Rabbit in Red which is where his mother is being put on display as the "mother of Michael Myers." That probably doesn't make him happy so he kills the crap out of everyone there. He then takes Laurie's friends out during and after the Phantom Jam, finally gets her, and tries to fulfill his visions at the old shed.
But here's the kicker. And this is what makes any explanation plausible-- Laurie sees the same visions Michael does. Loomis' big plan to rescue Laurie failed partially due to the fact that he thought he could just go in there and get her to come out, hopefully without Michael flipping and killing them. It was a long shot. But what screwed his plan up is the fact that Laurie was convinced that she was being held down in place by young Michael. None of this was happening though at all. So, in the end, I think it was just a culmination of everything that has happened to her, in both the 1st and 2nd. Loomis revealing to the entire public that Laurie is Michael's sister and divulging private information about her life to everyone. Her foster parents' death. Her nightmares. Annie dying in her arms. What I think did it is the fact that, at the very end, even after she stabs the crap out of him, Michael raises the knife to kill her but doesn't. I know he was "dying" but if he wanted her dead he would have killed her. And then she's all like "I love you brother" which carried over, mentally, from her hallucination that her mother was forcing her to say "I love you mommy." I think all of this, combined with everything she's went through in just a year's time, sent her into a psychotic state. It wasn't thoroughly explained, but I think Rob Zombie meant for viewers to realize all the extensive levels of traumatic damage Laurie is experiencing, and be able to rationally work out the reasoning behind the ending.
I won't try to pretend that I know for fact that it wasn't all in her head. What I love about horror films, when done right, is the ability to have conversations such as this, and it's a huge reason why I loved this one. But I do think everything that was shown in the film actually happened except for the hospital attack sequence and of course the visions of Deborah Myers and young Michael. I think everything else was indeed real.
