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     Is Twilight insane? 

Twilight is not insane; Celestia's message is truthful and accurate.
  • Twilight's understanding of the situation is correct. A dark force of unknown origin and nature has emerged, swallowing her, her friends and most of Equestria, twisting it into a distorted, sorrowful mirror of its original self. It was, however, unable to fully take and alter her, and so instead seeks to break her will through psychological torment. Dr. Rose's "treatment" never really occurred; it was simply the point when Twilight was swallowed up by the darkness before awakening in the illusionary Broadhoof.

Twilight is insane; Her recollections of her "old life" and the strange events that have haunted her in the asylum are merely hallucinations.
  • Twilight's fears about the reality of the situation are correct. Her past life in Canterlot and Ponyville, as Princess Celestia's faithful and most-favored student, bearer of the Element of Magic and her recalled relationships with her closest friends are all the products of a damaged and delusional mind. Dr. Rose's treatment was successful in giving her more interest in pursuing social relationships beyond her hallucinations, and also forced her to accept that she was not in Canterlot, studying under Princess Celestia. However, it did not remove her capacity for convincing herself of further schizophrenic delusions, nor did it force her to accept that her prior memories were a lie.

    Instead of discarding her past hallucinations, Twilight instead moved the "time table" of them further along — progressing to a point where she had moved to Ponyville and become a bearer of the Elements of Harmony, rather than merely being a student of Princess Celestia. Still unable to reconcile this new and updated set of delusions with her currently impossible-to-ignore status of a patient of Broadhoof, she has taken to weaving more of her personal narrative to explain it. Since "waking up," she has become convinced that Equestria has suffered a horrific fate, and the force behind it is directly persecuting her, as she is the only one to have been able to resist its corruptive influence. All these strange occurrences — Celestia's voice contacting her in the bathroom, the image of the "Plague Doctor" entity stalking Broadhoof and her own monstrous doppelganger — are nothing but a new set of hallucinations devised, unwittingly, to provide an explanation for her present circumstances and prevent her misconceptions about herself and her life from collapsing.

Twilight is technically insane, but only due to no longer being in her original body.
  • Twilight is wrong that she is still sane and at least partially wrong about the circumstances that have put her in Broadhoof, but she is not wrong about the life she remembers. The Twilight in the story is indeed the canonical — or close enough — Twilight Sparkle, faithful and favored student of Princess Celestia and bearer of the Element of Magic... but the body she inhabits is not hers. Instead, through unknown events, Twilight has unwittingly had her consciousness transferred into the body of a younger Twilight from another world who had genuinely been committed to Broadhoof and suffered from schizophrenic hallucinations for most of her life.

    Trapped in this form, the original Twilight is now burdened with the damaged and delusional mind that plagued the other Twilight. This manifests in an extremely short and volatile temper, wild paranoia compounded with genuine confusion and fear over her inexplicable circumstances, an impaired ability to reason, and, most cripplingly, vivid and potent hallucinations. These hallucinations may explain some or all of the strange events that Twilight has seen and experienced since her arrival in Broadhoof by way of the body transfer. Due to Twilight's lack of understanding over the real cause of these symptoms and ailments — and her struggle against the justifiable fear that she may have indeed have, in truth, always been a patient of Broadhoof — Twilight has mostly been unable to acknowledges these symptoms as symptoms. In order to maintain her morale in these trying circumstances, she clings to the idea, the "truth," that "[she is] not crazy." She has yet to consider that the reality she should cling to is more like "I am not crazy — but this body is."

    As an aside, as for what may have caused this body transferal... perhaps it was a side-effect — or the actual, if unintentional, direct effect — of Dr. Rose's treatment. Perhaps it was the result of deliberate action by the younger Twilight — it is worth noting that Dr. Rose's treatment seems to involve removing the magical silencer, thus allowing the possibility of the unicorn being treated (attempting to) use magic. Perhaps the darkness that Twilight believes has engulfed Equestria is real, is somehow representative of this alternate reality spreading into Normal Equestria, and thus forces all those taken by it into the bodies of their doppelgangers of Asylum's world.

Twilight's memories of her original life are accurate, but not complete.
  • When Twilight attempts to reassure herself that the violent nightmare she endured involving the Other Twilight was nothing but a dream, she cites to herself an example of another dream she had. One which felt entirely convincing during the course, but revealed itself to be completely implausible in retrospect. Specifically, she notes that she had dreamed that she had "suddenly transformed" into an alicorn... which, as I think goes without saying at this point, actually occurred in Friendship Is Magic's canon.

    Another important event that has yet gone completely unmentioned is Discord's rehabilitation. Twilight's reflections on the world she remembers in no way suggests said rehabilitation ever occurred, and it also directly points out that Twilight's ascension to alicorn princesshood never happened within her recollection.

    Occam's Razor would suggest that Twilight using that sort of specific example of an implausible dream was merely a perhaps-somewhat-cheeky nod to the source material. The first chapter of Asylum was posted well over a month before Magical Mystery Cure was aired and more than two weeks before Keep Calm And Flutter On was aired. Even if Twilight's ascension was well-known ahead of time, the author of the fanfic may have not wanted to attempt to include that element or Discord's rehabilitation in the story for numerous reasons. Perhaps the author didn't want to try to include the events during the planning phase as they could not have had complete information on how either episode or those events were going to play out. Perhaps they didn't want to weld on those elements after the episodes had aired as to do so would interfere with the story as-planned to no benefit. Perhaps just attempting to do either would wind up breaking the plot for some reason.

    Or perhaps, as the thrust of this WMG finally suggests, those events did happen in the normal version of Equestria — further presuming that Twilight is not mistaken about what she does remember — but Twilight's recollection of Discord's rehabilitation and her own alicornification have been somehow deliberately withheld from her memories.

Other Twilight/Twilight Smiles is an identical Evil Twin.

  • She was “born” during the real Twilight’s entrance exam, during the loss of control of her newfound powers. Other Twilight, despite being seconds old, was able to get to her feet and hide beneath the seats in the auditorium where the exam was taking place, and could only watch as the rest of the events (as seen in Cutie Mark Chronicles) play out. Other Twilight gets her cutie mark the same time as Twilight’s is shown the first time.

    It was only after Twilight left with her parents and her new dragon that Celestia saw the other Twilight crawl out. Confused, Celestia asked what she was doing here when she should be with her parents. Rather than answer, Other Twilight decided to show the princess her powers, which caused more damage to the auditorium than the real Twilight’s magic did. Other Twilight doesn’t apologize or show fear for her actions, and it is here that Celestia realizes what exactly her new student’s magic did: create an exact copy of her. Rather than scare her new student and her family with the news, Celestia arranges for the little filly to be sent to Broadhoof.

    Years go by, and Other Twilight becomes aware (and is extremely jealous) of her original’s successes as Princess Celestia’s protege, and as the bearer of the Element of Magic, while she herself has been subjected to therapy and various medicines, neither of which has helped her. She devises a way to switch places with her twin so she can get the respect and admiration she feels she rightfully deserves. How and why this troper is not sure, but it eventually leads up to the events we’ve gotten in Asylum.
     Regarding Broadhoof 

Broadhoof is an illusion created by The Phantom Ruby..
  • The "shadow" is Infinite.

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     Doctors and Patients 

Sweetie Belle had a lobotomy.
  • This will explain why she is wheelchair-bound and practically unresponsive in her appearance at the end of Chapter 17. The fact that her mane is shaved off could back this up.

Screw Loose is one of the doctors in the asylum, or at least lives a normal life.
While she was a mental patient in Twilight's memories, the Asylumverse Screw Loose was never one to begin with.

Doctor Rose is The Dragon for Twilight Smiles.

Given that our Twilight is imprisoned and not crazy, of course.

Twilight's quest to discredit Doctor Rose is going to end very badly for herself and the field of psychology.

Since the day she reawakened in Broadhoof Twilight has projected her paranoid delusions on Doctor Rose to make him the villain because he has no counterpart in her 'past memories', making him suspect as well as an authority figure burdened with informing her she's mentally ill, provoking her fear and hate. Her ongoing quest to discredit him as a fraud as some kind of personal vindication won't just remove him from her life, it will also stop all his research on alternatives to keratotomy when it is discovered he fudged the data and Twilight was just hiding her ongoing paranoid-schizophernia. Twilight's personal dislike of Doctor Rose is going to doom thousands of future mental patients to a lobotomy once his work is discredited and forgotten, all because she didn't like the way he talked to her.

For irony, this means Twilight will be subjected to keratotomy soon after she succeeds in getting Doctor Rose fired, leaving all her friends to be worse off for it; Pinkie slides further into her meek and submissive persona without her friend, Applejack is fired and gives up her career in psychology without Doctor Rose to stand up for her, Rarity becomes depressed that another pony she cared about has become an empty husk, Rainbow Dash may do something rash and stupid that gets her into big trouble and Fluttershy stays introverted and a potential suicide risk. Twilight gets to go back to her version of Equestria and be the heroic saviour she envisioned herself in a lobotomy-induced fantasy when in truth, all she did was damn her friends and all unicorns like her to a tragic fate.

Nurse Ratchet is a red herring.

The reference to a certain book/movie is a bit too on the nose, and Twilight's opinion of her treatment of her is from a potentially ill viewpoint. Meanwhile, what seems awfully condescending and paternalistic on Ratchet's part is just the way an adult would treat underage people if she herself was trying to act jovial but stern to a hospital of ponies who are largely developmentally stunted. Some of them genuinely need a stern hoof to guide them or be manipulated into doing the right thing. But at the end of the day Ratchet is just an ordinary mare working a 9 to 5 job doing what she thinks is best with no intended malice.

     Other 

In this universe, Shining Armor is married to Chrysalis.
  • Or at least a pony who Twilight envisioned to be a queen of love-feeding changelings, because she always thought her brother would marry her foalsitter. Maybe Asylumverse!Shining didn't fall in love with Cadence, but remained good friends with her.
    • Self-Jossing this WMG; Shining Armor is unmarried in the Asylumverse.

The version of Equestria shown in Asylum is considerably more mundane than the canonical version.
  • Pinkie's reaction to Twilight saying that her family owns a rock farm, as in normal Equestria — to the idea of the existence of a rock farm — is strongly amused incredulousness. She finds the concept literally laughably bizarre, gently teasing Twilight for coming up with such a silly idea. Assuming Pinkie's reactions are accurate to Asylum-Equestria's reality, we can conclude that there really is no such thing as farming rocks. If this notably bizarre and whimsical concept doesn't exist, it sets up the possibility that other more fantastical elements of Friendship Is Magic canon may also not apply in the fanfic's version of Equestria.

Regarding the "plague doctor".
It is actually a teenaged delinquent who thinks that it's fun to sneak into an asylum and scare some of the patients.

The Asylum versions of the show's main villains are as follows:
  • Nightmare Moon:
    • Luna never tried to bring eternal night, was never transformed into Nightmare Moon, and was never banished to the moon. She's been ruling with Celestia the entire time. Nightmare Moon was taken from a story Twilight read when she was younger.

  • Discord:
    • Never existed. Was based off a bizarre doll owned by another child patient which was body parts from different dolls stitched together.

  • King Sombra:
    • He did exist over 1,000 years ago, and did rule with an iron hoof, but was overthrown and later executed by the same ponies he ruled. Twilight read about him in one of her history books.

  • Queen Chrysalis:
    • The Changeling Kingdom actually exists, but not as Twilight remembers. For a long time, the Kingdom and Equestria were indifferent/neutral to each other, but Chrysalis and Celestia have recently tried to improve relations with each other, with overall good results. Twilight's memory of the Changelings and their queen stem from her inner belief that they're "invading" Equestria with the recent developments.
      • Jossed, the Changelings are definitely hostile.

Spike will appear in the main story at some point..
And just like everything else that could be proof that Twilight isn't insane, it will be left ambiguous whether he is real or not, and there will also be hints that he is an evil manifestation of some sort, as well as hints that he is a good manifestation of some sort.

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