There actually is something wrong with Sarge's eye(s).
The final scene was Michael's imagination.Dan and Michael teleport from a field to a hot-air balloon hovering over the same field for no readily apparent reason, Dan confirms Michael's insane theories about the East Coast and is way too nonchalant about Michael trying to kill a kid by spitting on him, and of course the obvious. It just doesn't mesh with anything that came before it.
Mandy DOES like Dan.But she has some kind of emotional abuse fetish (or, perhaps a little more sympathetically, she has a thing for Woobies and is kind of playing off that). She goes out of her way to hurt him, and despite sleeping with Sarge (which she goes to great lengths to make sure Dan knows) still shows blatant interest in Michael in front of both Dan and Sarge. Everything she does, just about, hurts Dan in some way. However, she was interested enough in him to date him and was going to sleep with him.
There is an order of SargesHe says "Hi, I'm the new Sarge", implying that there's more than one. Also he seems to have powers and, like the Chief, to be older than he looks.