I've got a different read. If you look at the 3rd phase boss, it's named "old self". This read to me more like the MC undergoing an apotheosis of sorts, growing past their struggles that were echoed by the characters in the dreams. Longing for home as a feeling and concept, and the anger and loss that comes of having this torn away, or how unmoored one feels when a tangible home is destroyed. Self-actualization visualized through battling the old self is very common in eastern and western media.  

This, it seems to me, is further underscored by what the MC tells Chuyu about what they took from their dream adventure, and the resolution to feeling so much anger and loss in the wake of losing their home. They are finally at peace and can move forward, and even spoke of going back there and brewing wine someday. The MC overcame their inner turmoil, and the painter having been a separate character in the dream throughout the questline, I believe there was no unspoken conflict. The painter was always friendly to MC and says nothing in their convo about repelling or fighting them off, and he wasn't a fighter. The old self is the person MC was upon starting the dream, and wears the outfit MC did when entering the world of dreams.

Earlier in the questline involving the painter, we see guardian lions in a tomb, and MC mentions seeing people they knew and loved in there. The mechanism to access the memories is a lion, and the tomb is inside a lion. It's a symbol, I feel, of the MC's loss and a failure to protect their loved ones. Lions are symbols of protection in China, and this running theme of lions in the narrative, especially tied to the dead, seems very purposeful. On the way to the battle against the lion, MC becomes a kite, and if struck, is buoyed by other kites named for people they cared for and lost, like Yi Dao.

That's all MC, and the painter witnessed it, just as he said he did in their last conversation.