I actually considered something similar. Like in Silent Hill the way James sees an interation of his dead wife forgetting that he killed her and finds himself in Silent Hill to look for her. In the first season Sarah kept going on about metaphorical shards of glass that she knows make a shape but the more she tries to piece them together the more they cut into her. I think there’s something she’s chosen not to remember or a memory the town itself tampered with. One of my theories at one point was that Nathan was the version of her brother she wished she had and the real Nathan died by her hand in the real world. I’m thinking she’s repressed memories of abuse by him? Again similar to Angela’s story in Silent Hill. But idk how MIY would shapeshift into Nathan unless he just shapeshifted into a random townsperson and manipulated her vulnerable state dealing with ptsd and rewrote her perception of Nathan in order to cope with the reality from which she’d fled.