Yeah, my sheep always disappears when I open the dream level and doesn't come back afterwards :(
I'm glad everything else is working though - it's not a huge issue because so long as I beat the dream level immediately I can then reset and play the normal level from the start. I beat the first 4 levels like this, but then looked ahead to some of the later ones and they seemed impossible. Maybe I'm missing some mechanics that I should be able to access from the dream world, due to this bug?