Ghadius is an extension of the King of Sorrow.Ghadius is described as a being of pure nightmares who was rejected and sealed away long ago by the people of Phantomile. He escaped to seek revenge for his imprisonment by destroying the world. The King of Sorrow's history and motivations are almost exactly the same: revenge on Lunatea for being rejected and banished from that world. Ghadius looks rather strange, too: he looks like nothing more than a mask and a cloak which leads to a starry void. The King of Sorrow was controlling the puppet known as Baguji; Ghadius' cloak could be connected to wherever the Kingdom of Sorrow was sealed. This would also explain why the King summoned Klonoa to Lunatea as part of his revenge, even though Klonoa wasn't from that dimension: he was seeking revenge for his previous defeat at Klonoa's hands when he was masquerading as Ghadius.
Klonoa is the player.Think about it: toward the end of Door to Phantomile, Huepow talks about how Klonoa isn't from their world and how he needs to be sent back to his own. We never see what Klonoa's real world is. It's because Klonoa is you, the player. The game ends with Klonoa going back to his own world; you then become aware of your own surroundings again as the credits roll. The whole "dream traveler" motif could just be an extension of the player, an avatar of whom is exploring fantasy worlds. When the game is over, Klonoa travels yet again—simply waiting for the player to pick up a new game. Even more evidence is at the end of the credits: in "Door to Phantomville," the name you chose for the save file is on the cover of the book (as if you're the "author"); in LV, the game says "good morning," addressing you by your save file name.
Klonoa is a Time Lord.It's possible, since at the end of the first game, it's revealed that Klonoa comes from an alternate version of Phantomile.
Klonoa is really a terminally ill child.At the beginning of both console games, it talks about how, essentially, the game you're about to play is a dream, or a look into Klonoa's imagination. By it being all set within his imagination, Klonoa can do whatever he wants within his Dream World. He invented everything - Huepow, his "Grandfather" (perhaps because his own died sometime before), the Wind Village, all of it. This is because the real Klonoa has a potentially life threatening condition - heart condition, tumors, what have you - his parents know that, eventually, their son is going to die. They try to make life for him as normal as they can, but the one thing he can't do is go outside and play with other children like he wants to. So, he created the fantasy world, to cope with what he can't do. The villain in the first game is just his mental image of his sickness. Like any optimistic child, he defeats Ghadius, and believes he can continue within his "dream". However, he's snatched away from the safety of "Phantomile" by a confirmation of the fact that, yes, he is going to die. Thus, the events of the second game are set up. Depressed by the revelation, he retreats into dreams again, but creates a new place, Lunatea, under the belief that Phantomile is too much of a good place. In Lunatea, the entire journey is him coming to grips with his sadness over the ever-nearing end of his life. In the end, he decides to enjoy the time he has left, and voluntarily leaves Lunatea behind.
The King of Sorrow is the personification of Klonoa's own sorrow from Door to Phantomile.To take this further, the entirety of Lunatea's Veil is a reflection of other aspects of Klonoa himself.
Klonoa's real world is a Crapsack WorldAnd it's so horrendously awful that the inhabitants, including Klonoa himself, often use hallucinogens to escape it, causing them to imagine that they are in happy, colorful dreamworlds. (Hence, Phantomile.) But it eventually wears off, snapping them out of the dream-state. (Hence, Klonoa getting sucked out of Phantomile instead of simply leaving it
Lunatea's Veil is Klonoa's coping mechanism of getting over being separated Huepow and having his memories toyed with
Lunatea's Veil is Huepow's psyche after Klonoa leaves DttP
Klonoa was killed on the way back to his universeHence why there isn't a Klonoa 3. In the ending of Lunatea's Veil, the portal Klonoa walks through was too powerful, and killed him. The kicker? Shortly after the portal ripples, Klonoa is surrounded by a bright light, and he is walking into it.
The Mira-Mirans of Lunatea's Veil died of starvation or were turned into treesOther than the lone woman at the beginning of the Maze of Memories, we never see any other alive Mira-Mirans. From the way that the woman talked, the "indecision" that plagues Mira-Mira could almost be a Does This Remind You of Anything? analogue for crippling depression. That, coupled with the fact that they never go outside of the museum and don't seem to have any food in there implies that many might have starved to death. Maybe hunger eventually triggered them to search for food, but the labyrinthine construction of the museum meant they couldn't escape before dying. However, we do see a giant talking tree in Indecision Pass consider itself part of the Mira-Mirans after Klonoa and co defeat the Hatchling. Maybe Mira-Mirans don't go outside because they somehow take root and turn into the various alpine trees you see if they do. When you consider the legend of Narcissus and the fact that Mira-Miras stare at things and constantly relive their past in the Maze of Memories, it's not totally out there...