The Dream Devil theory never really worked for me. Mainly because when Fujimoto wants his characters to feel nightmarish or surreal in dream or trance sequences he makes that very clear. For example when Denji tried to fight the Falling Devil for the second time and was put into that nightmarish trance.
It also undermines the reasoning behind Pochita erasing himself. They were consumed and their "dream" ended. Denji talks about wanting things like intimacy and a loving relationship, but Pochita suggests that maybe those desires are not so simple. Even when Denji achieves some of his goals, like finding a family, going to school and forming a connection with Asa, he is still not satisfied.
Pochita recognizes that Denji thrives in harsh conditions because he is always chasing something more. As stated, he has the kind of mind that can only find heaven while in hell.
Denji and Pochita being eaten can be seen as a consequence of Denji being Chainsaw Man. That endless cycle of violence eventually catches up to him. Because of Chainsaw Man, Denji is never truly satisfied and always wants more. Instead of choosing between right or wrong, he chooses whatever aligns with his own desires.
Denji does not follow rules. He wants to be Chainsaw Man, but he also wants a normal life, and then even more beyond that. That constant desire is part of who he is.
In a world without Chainsaw Man, Denji can keep dreaming in a healthier way. He can come to understand himself without being constantly targeted and having what he cherishes killed or destroyed. People would see Denji, not Chainsaw Man. That allows him to exist as his own person and finally live outside of that endless cycle.