If Huepow brought Klonoa into his reality, why can't he do it again?
He can't because Klonoa was only brought there to restore the balance of dreams, plus The Song of Rebirth would erase Klonoa from that world again. He doesn't belong there.
If Huepow created all of Klonoa's memories, doesn't that means that Klonoa's friendship was fake all along? He literally made Klonoa believe they were great friends, after all.
That's the point. Huepow filled Klonoa's mind with memories, but ended up Becoming the Mask while spending time with him. Why else would he have been torn up while confessing to Klonoa?
I'm personally more concerned with Klonoa's OTHER supposed relationships. Did he not actually have a close relationship with Grandpa? Was Grandpa in on it? Did Grandpa even exist? What about the fact that all the people from that same area looked to be the same species as Klonoa? Was that all made up, or do the same species just happen to live there too? Really the only two answers are either that everyone Klonoa thought he knew were in on some grand conspiracy, or they didn't even exist.
Well, Grandpa died as a result of the plot, so he had to have been pretty dedicated to whatever cause he would have belonged to. Either that, or they just weren't expecting Joka to go so far as to kill someone. It does seem a little odd, though, especially considering that Huepow still wanted Klonoa to finish his duty, even though he new exactly how big of a toll that it was taking on the guy. Perhaps, if everyone in Phantomile was in on some sort of plan, no one really realized how nice of a person Klonoa actually was, and just how much his life sucked in retrospect, until the very end, after everything had been said and done and they had all gotten to know him. But in spite of all that, they still had to let Klonoa be taken out of Phantomile for it to be saved. So, though the "plan" would have worked and everyone would have wanted Klonoa back in Phantomile, doing such a thing would ruin everything they worked for... or maybe you're right, and everything was just a dream, or something.
In the first game, it's explicitly stated in the end that Klonoa cannot stay in Phantomile because of the Song of Rebirth, but there's no such thing in Lunatea's Veil. And no one seemed to have the slightest problem with having him around. Which is to say, Klonoa could have stayed in Lunatea and finally had a real life, with friends and no repercussions whatsoever... So why didn't he? Geez, when is that third installment gonna happen?