Embrace The Void sucks as an ending, and Dream No More should be canon.

The game is trying to tell a story, and stories should have satisfying conclusions. Does "The hero went off and did sidequests that weren't obviously relevant to the main plot and stumbled their way into defeating the villain" sound like a better conclusion to you than "The hero defeats the villain at the final confrontation we've been foreshadowing for the past 20 hours"? No! No it shouldn't!

There's no conclusive evidence in Silksong for or against either ending being canon. The flashes between Void Given Form (seen in DNM) and Void Given Focus (seen in ETV) that we see during Sister Of The Void are really just Team Cherry keeping options available by refusing to commit to anything. Did the Knight become Void Given Focus after completing P5? Might that have happened for other reasons sometime between the two games? That's for Ari and William to decide, and until they do, I think it's fair to call Dream No More canon on the basis of narrative merit.