This movie is a direct rip off from the short story / film called "An Occurance at Owl Creek Bridge." For those of you who don't know it, I'll give a short summary.
The story starts off with soldiers from the civil war escorting a spy to a bridge to be hanged. They tie him up and drop him. But the rope snaps. He falls into the water, unties his hands and escapes while the soldiers are shooting at him. You then see his life trials and tribulations. Working, becoming successful, marrying a beautiful woman, having kids, growing old... Then you see him hanging from the rope at the bridge. The rope never broke, he just imagined it just before he died.
That's not to say the movie is bad. It's a very well done story with a great Sci-Fi twist to the original.
What about the mystery of where the engine came from and his family on the plane that later loses this engine? Are you saying that is all part of his dream?
All that happens between the daughter getting home from being out partying to just before Donnie is in his bed laughing is just an imagined story. They never tell you what happened to the rest of the plane because it doesn't come up in the story. It could have crashed a county over, but the topic was never broached in the real world (as opposed to imagined). That doesn't mean it didn't happen.
I think your forgetting the jet engine that fell through the roof.
The engine fell through the roof right above a window that had the head facing out. If it was coming, and donnie was laying there, he would have been able to see it coming.
Thus, he sees his imminent death, quickly imagines a really rediculous story and then laughs about how rediculous it was just before being destroyed by the jet engine.