I'm not suggesting for that thread to be closed, just for it to be moved and expanded a bit. People will still be able to post their self-insert Touhou fanfics if they want to, but now they'll also be allowed to post dreams they might actually have had, and people who don't dream about Touhou will be able to participate.
And ignoring whether the stories posted on that thread are real dreams or not for a moment, dreams are still something a bit personal, and people are being mocked for posting them. Isn't that one of the main reasons why Shrinemaiden Caf? and LettyJournal are invisible to guests, to prevent or at least decrease the likelihood of that happening? Sure some silly dreams are nothing compared to posts about personal issues, buuut...
To me that's where a dream thread should have been posted from the start. If I was around when the thread was originally created I would have suggested the same thing. (it was made not too long after I decided that I needed a little break from the fandom...)
It's up to the people to decide if they'll continue posting there and if any newcomers will want to join. Maybe it will become a better thread, maybe it will just slowly die after a while... I think either possible outcome would be an improvement. To me simply not keeping it where everyone can see would be a good thing, even if the thread itself didn't improve a lot.