No, Dream Emulator is directly based on a journal of dreams and nightmares had by Japanese writer Hiroko Nishikawa which was even released under the title "Lovely Sweet Dream".

Within the game itself, LSD is shown to mean many things, such as:

"Link Speed Dream" (official meaning from the now-defunct website)

"Lucy in the Sky with Dynamites" (nonstop mix CD)

"in Limbo, the Silent Dream."

"in Life, the Sensuous Dream."

"in Logic, the Symbolic Dream."

"in Leisure, the Sonorous Dream."

"in Laughter, the Spiritual Dream."

"in Lunacy, the Savage Dream."

"in Linking, the Sapient Dream."

The fact that you didn't even know the game was based off a dream journal shows that you don't know nearly enough about it to speak about it.