It is an interesting theory. I think the movie has one thing that supports this and one thing that makes it less reliable.
What makes it feel like a dream is the fact that we have Simba staring into the water while inside this small sort of cave and then all of a sudden he's outside again without having retraced his steps. If I remember correctly Simba shouldn't have been able to look at the sky from that particular spot. Either way, right when Mufasa disappears, Simba runs forward (where the waterhole he had stared into should be) and begs him to stay. Then he's back on that hill again as if Rafiki hasn't led him anywhere to begin with.
What makes the viewer think that it wasn't a dream is the line where Rafiki approaches Simba right after his conversation with Mufasa, stating that the weather is very peculiar (seeing how Mufasa appeared through the clouds and the sky, this suggests that Rafiki had seen the whole thing, thus making it real).
Also, in TLK 1 1/2, there's this scene where Timon and Pumbaa watch Simba's arguement with Nala right before Rafiki talks to Simba, and when the two of them leave you can see Mufasa's image forming in the clouds right when they turn their backs.
So, when you think about it, the whole scene doesn't make sense.
On one hand we have proof that it wasn't a dream but on the other hand - how did Simba end up outside again?