I too was at first a bit let down by the story of Lunatea's Veil, but, well... I always thought of them as "dreams", not knowing of who, but, they were dreams.
Well i, never thought of it that way, since right in the beginning of Door to Phantomile, he asks that, it is strange that dreams are forgotten when you wake up, despite knowing you had one, where do they go? Apparently, to Cress (from Phantomile, which... yeah does go to show that they had no plans for sequels), then it says "But there is one dream i clearly remember", fades to it, meaning that this is his dream, but it was done in a way that, i would forget this was a dream somehow... I thought the only dream part was the beginning actually, so i thought it wasn't a dream, until the end that is, besides, the world of Phantomile feels, much more believable than Lunatea, and is much more natural how levels are progressed, designed and done in Phantomile.
It is a dream that he remembers but, L'sV doesn't really need to be nammed "Klonoa 2", yes it does have in Hyuponia a motif in the background song and all that, but, y'know, you can start there, and end there, not having to play Door to Phantomile, and... Y'know, there is nothing really truly connecting these games, specially since, they are just, dreams, self contained with only being a vague reference to Hyuoponia, meaning, it is sub-conscious memories perhaps, which when i thought of it that way, started to make more sense the plot of Lunatea's Veil not having as much to do with Door to Phantomile as i expected it to at first, i thought at first that the void in Lunatea's Veil's intro was that blackhole from Door to Phantomile, meaning it was meant be a direct sequel, but, it clearly is not, and is its own thing.