Mulholland Drive: The Ultimate Explanation
Actual timeline of events-

1 - Diane at the dinner:
While the movie timeline starts with Camilla/Rita's Mulholhand Drive sequence, the actual reality timeline starts with Diane's ride down Mulholland Drive, to dinner (even though its seen as a flashback.)
The characters there will later be incorporated into the paranoid fantasy of her dream:
The director talking about the pool man, becomes the director in her dream, also with Diane's idea of the pool man.
The fat man who who doesn't like his coffee becomes the gangster who doesn't like his espresso.
Coco, the director's mother, becomes her landlady.
The cowboy-hat guy becomes the cowboy-hat Hollywood power figure.
The girl who kisses Camilla becomes the "Camilla Rhodes" in the dream part.
And of course, Camilla, her ex-lover who becomes the dependent, loving person Diane wants her to be, "Rita".

2 - Diane at Winkies:
After the humiliation at dinner, Diane decides to kill Camilla. At Winkies, we meet the hitman she hires. He remains the hitman (and becomes a pimp) in her dream, although an amusingly incompetent one.
The scary man in the background of this scene becomes the man with scary dreams in the dream-Winkies scene.
Diane's fear (acknowledging the reality of the murder) is projected into her dream as the mans fear, the scary bums face. We later see the connection, as it is this dream-bum who holds the box.
The single stack of dirty money is dreamed as clean, neat multiple stacks.
The plain blue key, that opens nothing but represents the murder, becomes futuristic looking, and now represents the 'key' to opening the repressed reality of the murder she is responsible for, hidden in the blue box.
The waitress at the diner becomes the prostitute.
The waitress's name, Betty, is the name Diane takes in her dream personae.

3 - Diane at home:
The first scene of the movie (after the opening dance sequence) is filmed as Diane's head landing on a pillow. We later learn that she already has the blue key, and knows the murder has taken place. At some point after that is the unseen moment that she began her downward spiral into fantasy, falls asleep, and dreams.

4 - Diane's dream/fantasy:
The first 2/3 of the movie-
It begins with Camilla/Rita escaping the hit Diane had just, in reality, taken out on her. "From there, Diane, a product of Hollywood, imagines the story in cinematic fashion: She sees herself as the naive wannabe starlet Betty, who succeeds on sheer talent and solves whatever problems are thrown her way. She even gets the girl!...she re-imagines her ruined career and failed relationship with the woman she loves." - And punishes the director for getting the girl in the real world.

5 - The box:
In the "silencio" club scene, because of all the "illusion" comments and depictions, such as the singer, Diane realizes she is dreaming and shudders. On the edge of reality/waking, the box appears in her dream as her subconscious could no longer repress her memories of murdering her friend. The box is the symbol of Camilla's death and inside it Dianes guilt, which she kept locked up by her fears (the bum/monster). Once Rita/Camilla unlocks it, the dream-cowboy says "It's time to wake up."

6 - Diane's awakening:
As shown on her face when she wakes, Diane is forced to face the fact that it was all a dream, the sadness of her own life, and the guilt brought on by having her ex-girlfriend murdered. Diane's neighbor knocks on her door, which is what actually woke her up, to tell her there have been Detectives looking for her. More confirmation that there has been a murder. From "She starts reflecting on how she came to be in this position, from Camilla's coolness to her flirtations with Adam to the unforgivable humiliations at the party. Diane sees that she's been reduced to an object of pity and contempt by even someone like Coco." In her kitchen, Diane says excitedly "You've come back", to "Camilla" before quickly realizing it was just another hallucination/fantasy. This is when Diane goes into a flashback of:
1 - Diane at dinner
2 - Diane at Winkies
Leading into:

7 - Diane's breakdown:
This hallucination starts with the bum dropping the open blue box, the murder realization, and then comes the crushing guilt, represented by the escaping little old people she actually met at the real-life jitterbug contest. (When we first meet Betty, she is saying good-bye to this couple, in effect, saying good-bye to the guilt that they represent. This is why Betty was so happy in the beginning, when Diane's dream was in full effect, and her guilt was gone and forgotten, being driven away in a limo.) As her guilt and reality overwhelm her, in the hallucinatory breakdown of the old couple attacking, she shoots herself in the mouth.