Said level was expressly in the Forest of Memory, so maybe she already knew the song anyways?
The town in which Claris and Elliot live in the original game is called Twin Seeds. The game centers around the two kids overcoming their inhibitions and growing as a result of their experiences.
Don't forget the name of the "La La La" song Claris sings is Sowing Seeds.
This troper's seen a few creepypasta for NiGHTS, and they're EXTREMELY different. A few days later, it hit me. Of course they're different, they're the nightmares that the writers had. One was about Selph, and what had become of it, another was about a lover...
In his backstory, Wizeman was a Visitor who lost all his Ideya. Now, remember that every Visitor we've seen so far is a kid...
Visitors are just dreaming humans. There's nothing that says adults can't be Visitors either.
The entire series, when one comes to realize that, at the root of it all, it's essentially the story of a bunch of nightmare demons fighting over the 'souls' of sleeping kids.
Wizeman and Reala's treatment of NiGHTS is definitely abuse (though Reala is treated cruelly also), which makes you wonder how bad things got when NiGHTS was a resident of Nightmare...especially if he was always "not scary enough" and/or warmhearted.