I am supposed to write about the latest in dream research. I already visited a sleep-deprivation lab in an academic hospital here in the Netherlands. Some have stimulated or cut pieces of the brain in lab-animals and came up with interesting results. But that's about it. It doesn't solve any question about dreaming.
All evidence seems to be circumstancial, so to speak, the rest is interpretation and psychology.
I can't seem to find any substantial biological breakthroughs or discoveries for the past years. My book, Stop Sleeping Through Your Dreams covers this history in detail. A very recent study I saw showed that PET scans of the brain reveal less forebrain activity during dreaming than waking, and increased lower brain activity, which is asociated with emotions. This fits with the general description of dreaming as we understand it, that it is an event that is largely devoid of critical or reflective ability. Critical ability and consciousness are known to be neurally located in the forebrain region.